Tax Query: Can I claim deduction on housing loan under new tax regime?

I have a house property let out for an annual rent of Rs 4,20,000. I also pay a municipal tax of Rs 40,000 annually on the property and housing loan EMI of Rs 4,80,000. My estimated annual interest payment for FY 2020-21 is Rs 2,80,000 and principal repayment is Rs 2,00,000. I also have a salary income of Rs 8,00,000. Can I claim deductions on municipal tax, principal and interest payments under the new optional tax regime for FY 2020-21?

First, you have an option to use the new tax regime or continue with the existing tax regime. You can exercise your choice after making a comparison of the tax benefits under both the regimes. 

Similar to the existing regime, under the new regime, you can claim deductions on municipal tax, standard deduction of 30% and interest paid on housing loan. However, the deduction for interest gets restricted to the rental income. Also, you are not allowed to set off or carry forward a loss from house property. A comparison of income-tax calculation between the new regime and the existing regime is as follows:

Rental income for FY 2020-21 New regime Existing regime
Gross rent 420,000.00 420,000.00
Less: Municipal tax 40,000.00 40,000.00
380,000.00 380,000.00
Less: Standard deduction at 30% 114,000.00 114,000.00
266,000.00 266,000.00
Less: Interest on housing loan (Rs 2,80,000 restricted to net taxable rent of Rs 2,66,000) 266,000.00 280,000.00
Taxable rental income (loss) 0 (14,000.00)
Salary income (a standard deduction of Rs 50,000 in existing tax regime) 800,000.00 750,000.00
Gross total income 800,000.00 736,000.00
Less: Deduction for principal repayment (Section 80C) 0 150,000.00
Total income 800,000.00 586,000.00
Tax payable 45,000.00 29,700.00
Add: Education cess @ 4% 1,800.00 1,188.00
Total tax payable 46,800.00 30,888.00

As seen from the table above, you cannot claim a deduction for principal repayments under the new regime. Thus, a comparison should be made between the new regime and the existing regime to arrive at the tax benefits. In your case, the existing regime is beneficial with a lower tax payable.

Also Read: Tax Query: Can co-owners of the same house claim tax benefits?

I am a citizen of India residing in India. I will be leaving India for the first time for employment in the UK on 1 August 2020 for a year until 31 July 2021. Will my salary income earned in the UK be taxable in India in FY 2020-21?

You will be a tax resident of India for the FY 2020-21 if you satisfy either of the following conditions:

  1. Stay in India for 182 days or more in the financial year, or
  2. Stay in India for 60 days or more in the financial year and 365 days or more in the four years immediately preceding the financial year

Since your stay in India will be 122 days which is more than 60 days, and you have stayed in India for more than 365 days in the preceding four years, you will be a tax resident of India. Further, if you satisfy the additional conditions mentioned below, you will be a resident and ordinarily resident in India.

  1. Resident in India in 2 out of 10 years immediately preceding the previous year; and
  2. Stayed in India for 730 days or more in the seven years immediately preceding the previous year.

In your case, since you have been staying in India in the past, you will satisfy both the additional conditions and be a resident and ordinarily resident for FY 2020-21. In the case of a resident and ordinarily resident, the global income is taxable in India. In your case, the salary earned outside India from 1 August 2020 to 31 March 2021 will be taxable in India. However, you can claim a tax credit for the foreign tax paid on such salary, while filing your income tax return in India.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

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