How To Claim Tax Benefits On Both Home Loan And HRA?

By Jay Dee Infra In Tax Benefit No comments

How To Claim Tax Benefits On Both Home Loan And HRA?

Exemptions are something that every tax payer wants to avail of to have more savings. One can claim tax exemption if the home owner is paying back a home loan and getting house rent allowance (HRA) as part of their salary receipts, i.e. the home owner is living on rent.

Principal repayment amount and interest amount make up the EMI against the home loan. After fulfilling the requisite conditions, all these payments can be claimed as exemption under different sections of the Income Tax (I-T) Act, 1961.

Let’s understand these in detail.

The I-T Act allows taxpayers to claim exemptions on investments and expenditure incurred out of the total or gross income.

While exemptions on principal repayment of home loan can be claimed under Section 80C and interest payment can be claimed under Section 24b, Section 10 (13A) of the Act allows one to claim exemption on HRA.

People living in the metro cities have to shell out 50 per cent of their salary (40 per cent for other cities) for claiming HRA or lowest of the actual HRA amount received from the employer or 10 per cent of the salary including basic salary, dearness allowance and turnover-based commission which is deducted from the actual rent paid.

Under Section 80C of the I-T Act, Rs 1.5 lakh can be claimed as principal repayment exemption or the actual amount of principal payment, whichever is less.

Under Section 24b of the I-T Act, Rs 2 lakh can be claimed as interest repayment exemption (provided the house is self-occupied) or the actual amount of interest payment on loan, whichever is less.

In case the house is rented instead of self-occupation, the whole amount of interest on the home loan can be claimed as deduction.

Conditions apply

You can claim deduction for repayment of home loan but an exemption on HRA can be claimed if you are living on rent. Tax benefits can only be claimed for both if certain conditions are fulfilled.

For instance, with the help of a home loan, if you have bought a house and you have also occupied it, you can claim only the principal and interest exemptions but not the HRA exemption.

If you have bought a house with the help of home loan but live in another house on rent, you can claim tax benefits on both.

But, if both the houses are located in the same city, you will have to explain the reason behind not living in your own house.

Some of the reasons given are commute time or distance of the house from the workplace. These explanations may have to be rendered to your employer or the I-T authorities in case of any scrutiny.

Otherwise, if you are currently working in a different city other than where your family is, you can easily avail of both these tax benefits.

Also, HRA exemption cannot be claimed if an employer lets out a property to the employee and recovers a certain amount of rent on it. Similarly, if the employee is a joint owner/s of the property and pays certain amount of rent to the other joint owner/s, the HRA exemption cannot be claimed.

Source: Makaan