Buying Home Vs Rent: Is it better to rent or own a home? This is a complex question. Should one spend big on buying a home with the help of a home loan when prices are high and capital appreciation in many cities is not as high as it was earlier? Isn't it easier to rent near the office? Investing in a home is a safe and solid investment. A home is not just four walls but a lot of emotions are attached to it. Let's look at it from a tax perspective.
Renting a home
The biggest benefit of renting a home from a tax perspective is the House Rent Allowance (HRA) exemption. If HRA is not part of your salary package - say if you are self-employed or a consultant - you can avail of a deduction of up to Rs 5,000 per month from gross taxable income under the old tax regime. HRA exemption is not available to taxpayers who opt for the new tax regime. The exemption is applicable on the lowest of the following-
● Rent payment of less than 10% of salary (basic salary and DA)
● 50% of salary if the house is in Delhi, Mumbai, Kolkata or Chennai, 40% of salary in other cities
● Actual HRA availed
Other benefits
● Rent can be less than home loan EMI
● More choice of location and type
● Can easily relocate to another area of the city
● Tax benefits available (under the old tax regime)
Disadvantages
● Rent does not become an asset, no matter how much it is
● Rent usually increases every year, increasing cash outflow
● No or limited scope for making structural changes
● May have to vacate on short notice
Buying a property
Tax benefits are available only under the old tax regime. If you take a home loan to buy a house, the EMI is usually made up of two parts – one part goes towards the principal (the amount you took as a loan) and the other towards the interest (the cost of servicing the loan).
On principal repayment: Under the old tax regime, deduction is available under section 80C up to a total limit of Rs 1.5 lakh. Under this limit, principal repayment, stamp duty, registration fees, and other expenses related to the transfer of house property are eligible for deduction.
On interest payment: 3 conditions apply: The house is self-occupied, vacant or let out. Under the old tax regime, a deduction of up to Rs 2 lakh per annum is available on interest paid on a home loan for self-occupied house property. It can be set off against any other income. The same rules apply even if the house is vacant. If you have let out your house, you can claim a deduction not only for interest paid on a home loan but also for municipal tax paid and a standard deduction of 30 percent of rental income.
Set-off and carry forward of losses: If your house is a self-occupied property purchased using a home loan, it means you do not get any rental income from it. Hence, interest paid on home loan will be a loss. Loss up to Rs 2 lakh from house property (whether self-occupied or let out) can be set off against any other income (such as salary or income from other sources) in a financial year. Loss above Rs 2 lakh can be carried forward to 8 subsequent assessment years but can only be set off against ‘income from house property’.
Notional Rent:
The concept of notional rent applies when a person owns 3 or more houses. In such cases, 2 house properties are considered self-occupied (without any conditions as per Budget proposals 2025) and the rest are considered ‘deemed rented’. This is based on the expected market rent and becomes taxable.
Advantages:
● A house is an asset and the EMI goes towards building this asset.
● Tax benefits on home loans
Disadvantages:
● Heavy costs like down payment and registration, followed by property taxes and repairs.
● House properties are illiquid as they cannot be sold quickly.
● Property prices fluctuate and may not give the expected returns.
● EMIs have to be paid regularly.
Disclaimer: This content has been sourced and edited from News 18 hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
