The decision of renting or buying a home can be just as complicated as the one Hamlet faced. With an EMI to consider, is it really worth investing in a house property when capital appreciation in many towns is not as good as it used to be? Living on rent seems easier and closer to work, but a house also symbolizes security and sentiment. Both methods have their own advantages and disadvantages from a tax perspective.


Employers usually provide House Rent Allowances (HRAs) because they are tax-efficient salary components. However, if your cost-to-company salary package does not include HRA, you may be eligible for a deduction of up to 5,000 a month for rent paid. The individual cannot own a property near the workplace, for example. Certain conditions are set.

Residents staying on rent can claim an exemption against HRA received, and only the balance is taxable. The exemption is limited to Rent less than 10% of salary (basic salary and DA)

If the house is located in Delhi, Mumbai, Kolkata, or Chennai, 50% of the salary will be paid, otherwise 40% will be paid.

The HRA exemption is not available to taxpayers who opt for the new tax regime


The rent may be lower than the EMI on a home loan

Choice of a more central location, as homes for purchase are typically more affordable in the suburbs

Provides ease of relocation

There are tax benefits available

The cons are:

There is no creation of assets

A rise in rent leads to an increase in cash outflow every year

There is no freedom to make structural changes to the house

You may be asked to leave on short notice by your landlord


When buying property with a home loan, there are multiple tax benefits associated with the purchase. Equated Monthly Instalments (EMIs) are typically divided into principal (the amount you loaned) and interest (the cost of servicing the loan).

The amount paid on principal repayment, stamp duty, registration fee, and other expenses for transferring a house property is deducted under Section 80C.


Self-occupied house properties qualify for a deduction of interest paid on housing loans up to Rs 2 lakh per annum, which can be offset against other income. (If the house is rented out, the taxpayer is eligible to claim a deduction for interest on the housing loan, municipal taxes, as well as 30% of the rental income).

For first-time home buyers, an additional deduction of up to 1.5 lakh can be claimed under Section 80EEA for interest paid on a housing loan, provided the loan was sanctioned between April 01, 2019 and March 31, 2022, for the purchase of a residential property with a stamp duty value of less than 45 lakh.

Under the new tax regime, deductions are not available

In the case of a self-occupied property with a home loan, the total loss from the house property cannot exceed 2 lakh in a financial year, and the deduction of the interest will also result in a loss. The excess amount (if any) can be carried forward for eight subsequent assessment years to set-off against ‘Income from house property’.

The concept of notional rent comes into play, if an individual owns more than two house properties. The remaining properties, even if not let out, are treated as ‘deemed let-out’, and the notional rent (based on the expected market rent) becomes taxable income in such cases. Two properties can be considered ‘self-occupied’ in such circumstances.


Rather than paying rent to a stranger, create an asset

Repayment of home loans and interest payments are eligible for tax benefits


As well as the upfront costs of purchase and registration, regular property taxes, renovations and repairs are additional expenses

Low liquidity in case of a sudden emergency

As the property price is uncertain, the asset may not generate the required return on investment

There is no option to move to a lower-rent place if one loses a job or income fluctuates.

Please note that the figures mentioned above may have changed subsequent to Government of India’s Budget proposal 2023-24.

Here is a graphic that sums up the entire post.

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