Income Tax: How To Legally Pay Zero Tax On ₹14.75 Lakh Income Using A Smart Home Loan Trick
Income Tax: Many salaried taxpayers are now exploring the new income tax regime as a fresh opportunity to reduce their tax liabilities without the complexity of multiple deductions. For financial year 2025–26, the revised tax slabs under the new regime allow a significant portion of income to remain tax-free. According to tax experts, individuals earning up to ₹12.75 lakh per annum, when factoring in standard deductions, may not have to pay any income tax at all. Interestingly, the new regime also accommodates select tax benefits, such as those available on interest paid towards a home loan for let-out properties—making it a smart option for property owners looking to maximise savings.
Understanding the Basics of Home Loan Tax Benefits in the New Regime
While the new tax regime does away with most traditional deductions and exemptions, it still allows for specific allowances. Among these is the benefit on interest paid on home loans for rented properties. Experts highlight that if a taxpayer owns a second home which is not self-occupied but rented out, the interest paid on the loan for that home can be set off against rental income. This provision helps reduce taxable income and, in some cases, bring it down to zero.
The key, however, is the cap—only a maximum of ₹2 lakh per financial year can be claimed as a tax benefit under this head. Additionally, this benefit is applicable only if the home is rented out. Self-occupied or vacant properties do not qualify for this adjustment in the new regime.
Practical Scenarios to Understand the Impact
Let’s take a closer look at how this works with real-life examples, as explained by financial consultants.
If an individual earns ₹14.75 lakh as annual salary and also pays ₹4 lakh in interest for a let-out home loan, while earning ₹2 lakh from rent, they face a net rental loss of ₹2 lakh. Under the current provisions, this ₹2 lakh loss can be adjusted against the salary income.
Following this adjustment, the effective income reduces to ₹12.75 lakh. Add to that the standard deduction of ₹75,000 allowed in the new regime, and the final taxable income drops to ₹12 lakh—falling within the zero-tax bracket for the new regime in FY26.
Limitations You Should Be Aware Of
Despite the flexibility, there are caveats that property owners must keep in mind. Firstly, any interest paid over ₹2 lakh cannot be set off against other income heads. For instance, if your interest payment is ₹7 lakh but rental income is only ₹2 lakh, your loss stands at ₹5 lakh. However, only ₹2 lakh is allowed for adjustment.
Secondly, if your rental income exceeds the interest paid, there is no negative income to adjust. So, no tax benefit arises in such cases. For example, if interest paid is ₹3 lakh but rental earnings are ₹4 lakh, your net rental income is ₹1 lakh—leading to an increase in taxable income, not a reduction.
Lastly, owning a self-occupied home on loan does not yield any tax deduction on interest under the new tax regime. This can be a point of disappointment for some taxpayers used to the old system where both interest and principal repayments were deductible.
Why This Strategy Matters for High Earners
Experts suggest that the combination of salary income and property-based deductions is especially advantageous for middle to upper-middle-income earners who wish to keep their taxes minimal without the complexity of multiple investment proofs and deductions.
Those with incomes slightly over ₹12 lakh can carefully plan property purchases or home rentals to align with tax optimisation goals. The additional benefit of ₹2 lakh from rental property losses acts as a cushion to enter the zero-tax zone, provided the rest of the income is structured correctly.
Final Word for Taxpayers in FY26
The new tax regime, often seen as streamlined but limited, still carries potential for strategic savings—especially when it comes to property ownership. While it lacks the blanket deductions of the old system, it rewards those who understand its inner workings. As financial planners often recommend, making use of this home loan interest benefit could be a key step in ensuring your income stays tax-free, even with earnings up to ₹14.75 lakh. The rule may come with restrictions, but for those who plan well, the rewards can be substantial.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Readers are advised to consult a qualified tax professional or financial advisor to understand how the provisions apply to their specific circumstances under the new tax regime.
Understanding the Basics of Home Loan Tax Benefits in the New Regime
While the new tax regime does away with most traditional deductions and exemptions, it still allows for specific allowances. Among these is the benefit on interest paid on home loans for rented properties. Experts highlight that if a taxpayer owns a second home which is not self-occupied but rented out, the interest paid on the loan for that home can be set off against rental income. This provision helps reduce taxable income and, in some cases, bring it down to zero.
The key, however, is the cap—only a maximum of ₹2 lakh per financial year can be claimed as a tax benefit under this head. Additionally, this benefit is applicable only if the home is rented out. Self-occupied or vacant properties do not qualify for this adjustment in the new regime.
Practical Scenarios to Understand the Impact
Let’s take a closer look at how this works with real-life examples, as explained by financial consultants.
If an individual earns ₹14.75 lakh as annual salary and also pays ₹4 lakh in interest for a let-out home loan, while earning ₹2 lakh from rent, they face a net rental loss of ₹2 lakh. Under the current provisions, this ₹2 lakh loss can be adjusted against the salary income.
Following this adjustment, the effective income reduces to ₹12.75 lakh. Add to that the standard deduction of ₹75,000 allowed in the new regime, and the final taxable income drops to ₹12 lakh—falling within the zero-tax bracket for the new regime in FY26.
Limitations You Should Be Aware Of
Despite the flexibility, there are caveats that property owners must keep in mind. Firstly, any interest paid over ₹2 lakh cannot be set off against other income heads. For instance, if your interest payment is ₹7 lakh but rental income is only ₹2 lakh, your loss stands at ₹5 lakh. However, only ₹2 lakh is allowed for adjustment.
Secondly, if your rental income exceeds the interest paid, there is no negative income to adjust. So, no tax benefit arises in such cases. For example, if interest paid is ₹3 lakh but rental earnings are ₹4 lakh, your net rental income is ₹1 lakh—leading to an increase in taxable income, not a reduction.
Lastly, owning a self-occupied home on loan does not yield any tax deduction on interest under the new tax regime. This can be a point of disappointment for some taxpayers used to the old system where both interest and principal repayments were deductible.
Why This Strategy Matters for High Earners
Experts suggest that the combination of salary income and property-based deductions is especially advantageous for middle to upper-middle-income earners who wish to keep their taxes minimal without the complexity of multiple investment proofs and deductions.
Those with incomes slightly over ₹12 lakh can carefully plan property purchases or home rentals to align with tax optimisation goals. The additional benefit of ₹2 lakh from rental property losses acts as a cushion to enter the zero-tax zone, provided the rest of the income is structured correctly.
Final Word for Taxpayers in FY26
The new tax regime, often seen as streamlined but limited, still carries potential for strategic savings—especially when it comes to property ownership. While it lacks the blanket deductions of the old system, it rewards those who understand its inner workings. As financial planners often recommend, making use of this home loan interest benefit could be a key step in ensuring your income stays tax-free, even with earnings up to ₹14.75 lakh. The rule may come with restrictions, but for those who plan well, the rewards can be substantial.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Readers are advised to consult a qualified tax professional or financial advisor to understand how the provisions apply to their specific circumstances under the new tax regime.
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