HRA, Let-Out and Self-Occupied House Property Under Old and New Regimes
Mr. Rohan, a salaried employee in Delhi, has opted for the old tax regime. For FY 2024-25 he received basic salary of ₹90,000 per month and dearness allowance at 20% of basic, which forms part of retirement benefits. He also received HRA of ₹30,000 per month and paid rent of ₹40,000 per month for his residence in Delhi. He owns two houses. House A is let out at ₹25,000 per month; its municipal value is ₹2,80,000 and fair rent is ₹2,90,000. Municipal taxes of ₹18,000 were paid by Mr. Rohan. Interest on the loan for House A was ₹1,60,000. House B is self-occupied and interest on its loan was ₹2,40,000. He has no other income. He wants to know how much HRA exemption he can claim, the income from both houses, and the effect of shifting to the new tax regime.
1. Compute Mr. Rohan's HRA exemption and taxable salary for FY 2024-25 under the old regime.
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Salary for HRA purposes includes basic salary and dearness allowance forming part of retirement benefits: ₹10,80,000 + ₹2,16,000 = ₹12,96,000. HRA received is ₹3,60,000.
HRA exemption is the least of:
- Actual HRA received: ₹3,60,000.
- Rent paid minus 10% of salary: ₹4,80,000 − ₹1,29,600 = ₹3,50,400.
- 50% of salary for Delhi (metro): ₹6,48,000.
Exemption = ₹3,50,400.
Taxable salary = basic ₹10,80,000 + DA ₹2,16,000 + HRA ₹3,60,000 − exemption ₹3,50,400 − standard deduction ₹50,000 = ₹12,55,600.
2. Compute income from House A and House B and Mr. Rohan's total income after set-off of house property loss against salary.
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House A (let out): Gross annual value is the higher of municipal value ₹2,80,000, fair rent ₹2,90,000 and actual rent ₹3,00,000, i.e. ₹3,00,000. Net annual value = ₹3,00,000 − municipal taxes ₹18,000 = ₹2,82,000. Less standard deduction 30% = ₹84,600. Less interest ₹1,60,000. Income = ₹37,400.
House B (self-occupied): GAV is nil. Interest on loan is ₹2,40,000, but the deduction is capped at ₹2,00,000. Loss = ₹2,00,000.
Total house property income = ₹37,400 − ₹2,00,000 = −₹1,62,600. This loss can be set off against salary under section 71, as the overall house property loss does not exceed ₹2,00,000.
Total income = ₹12,55,600 − ₹1,62,600 = ₹10,93,000.
3. What changes if Mr. Rohan shifts to the new tax regime under section 115BAC? Compare the outcome.
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Under the new regime, HRA exemption is not available, and interest on a self-occupied house is not deductible. The standard deduction is ₹75,000. Interest on the let-out House A remains deductible, and the 30% standard deduction on its NAV remains available.
Taxable salary = ₹10,80,000 + ₹2,16,000 + ₹3,60,000 − ₹75,000 = ₹15,81,000.
House property income = House A ₹37,400 + House B nil = ₹37,400.
Total income = ₹15,81,000 + ₹37,400 = ₹16,18,400.
Under the old regime the total income is ₹10,93,000, so the old regime is clearly better for him because of the HRA exemption and self-occupied interest. He should opt for the old regime in the return.