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Can home loan tax benefits and HRA be claimed together?


Can home loan tax benefits and HRA be claimed together?

There is a prevailing doubt amongst several individuals regarding the viability of claiming HRA and home loan tax benefits together. More often than not, it seems problematic when it comes to claiming house rent allowance and home loan tax deductions at the same time. However, there are some situations in which you can claim both without any hassles. Tax liabilities can be lowered considerably with both HRA and home loan tax benefits alike.

Here are some situations in which both HRA and home loan tax deductions can be claimed.

HRA exemptions can be claimed by taxpayers under Section 10 (13A) of the Income Tax Act of 1961. For working out the amount exempted, the lowest amongst these three fields is considered by the authorities-

  • The HRA actually received from one’s employer
  • 50% of one’s salary in case the employee resides in a metro city and 40% of the salary in case the employee lives in a non-metro city
  • Actual rent that is paid with the deduction of 10% of the salary (basic salary and the dearness allowance and also the commission based on turnover)

The tax benefits on home loans are worked out differently. These include the following:

  1. Deductions can be claimed on the principal repayment of a home loan under Section 80C of the Income Tax Act up to Rs. 1.5 lakh or the actual principal amount that is repaid, whichever is lower.
  2. Deductions can be claimed on the interest repaid annually on the home loan up to Rs. 2 lakh under Section 24B of the Income Tax Act.

Can you claim both HRA and home loan tax deductions?

You can claim both these deductions in case you have a home which already has a home loan running and live in another home as a renter. The condition is that the home that you own and the one where you reside should be located in different cities. You should also have a solid reason for not living in the home that you actually own, i.e. the one which is under the home loan. The reasons could be anything from working in a different city and even the distance of your workplace from the property that you own, i.e. if it is located in a suburb of a major city.

However, these are explanations that have to be given to your company and also the income tax authorities in case of any scrutiny being done on the details that have been given by you. Additionally, both these exemptions can be claimed in case you take a home loan for purchasing a property that is being constructed and live in a rented home for the entire duration of construction. In such situations, both the HRA exemption and tax benefits can be claimed for this particular period of time.

Yet, the benefit on home loan deductions can be claimed only for paying off the interest portion of the loan and not in case of repayment of the principal amount. You can also claim the same in 5 equal instalments post getting possession of the property in question. You can also claim both these exemptions in case you rent out the home on which a home loan is running and you reside in another home on rent at the same time. The reason for this may be the fact that the home that you have does not cater to your specific needs or because it does not have sufficient space for you and your family. While you can certainly claim HRA and tax benefits together in such cases, you will have to reveal the income from rent that you receive annually from the property that has been rented out.

As a result, questions will not be raised in these scenarios if you claim both HRA exemption and tax benefits. You can claim both if you shift to your own home from a rented home during the year under assessment or even vice versa. Also, you may have a smaller home and can shift to a larger rented home as stated above. Also, your children may be studying in the area where the rented home is located and it may not have been possible for the child to change schools and as a result, you may not have been able to shift to the new home under your name.

You should always make sure that all necessary documents such as completion/possession documents, lease deeds and so on should be ready for justifying your stand to the Income Tax department in case of any query being raised. People living in rented accommodation can otherwise claim HRA for lowering their tax liabilities since this is partially tax exempt. However, in case you do not have rented accommodation and stay in a home of your own, HRA will become totally taxable.

Make sure that you consider all these points carefully before deciding to claim HRA and home loan tax deductions together. The conditions stated above should apply to you in order to claim both benefits simultaneously and you should have all necessary documentation ready with you in case of any queries or scrutiny by the IT department.


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