Can you claim both HRA & deduction on home loan interest?

Table of Content

• Can you claim tax benefit on both HRA and home loan repayment?
• Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.
• Conditions for claiming HRA
• Own house in city of employment and stay on rented house in same city
• Online HRA calculator and HRA benefits

Here are three ways you can claim HRA and home loan tax deductions together. Yes, you can claim income tax exemption on both house rent allowance and repayment of home loan. If you are living in a house on rent and servicing a home loan on another property – even if both the properties are located in the same city – you can claim tax benefit for both. If you live in rented accommodation and get HRA from your employer it is a customary tax-saving exercise to claim tax exemption on the same. Others who buy a house on a home loan get tax deduction against home loan interest and principal repayment.

However for interest on home loan to be eligible for tax benefit, your house should be ready. Hence for under construction house you cannot claim tax benefit on home loan right now. You can divide the home loan interest paid in under-construction period in 5 equal parts and claim it each year from the year house is ready. HRA is an allowance paid by employers to employees to meet the cost of a rented house. Income Tax Act allows exemption in respect of HRA only if the employee is staying in a rented house.

Can you claim tax benefit on both HRA and home loan repayment?

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This deduction of interest is available for every housing loan taken for purchase, construction, renovation or reconstruction of a residential house. The amount of tax deduction depends upon the purpose for which the house has been occupied – i.e. whether the house is occupied for one's personal use or for renting out to others. Yes, but it is not possible with a self-occupied house as this can happen only when you give your property on rent. “If a person lets out his own property and lives in the same city or any other city for any reason including proximity to the children’s school or job location etc., the person shall be eligible to claim benefits of HRA as well as Home loan repayment,” says Surana.

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You can use execution platform/services with any third party as deem fit and proper, and there is no compulsion to use the execution services through this Website. You can easily claim tax benefit on both and NO employer has issue with this arrangement. "For claiming benefit of HRA under Section 10, the person should not own such property and rent is actually paid by the person," says Dr. Suresh Surana, Founder, RSM India. You can claim HRA but allowing it as a deduction by the income tax department is a question. So, you can keep the maximum of two house properties as self-occupied and include rental income from the rest of the properties in your income and pay applicable taxes. “If the home is self-occupied by the taxpayer (weekly stay also meet the requirement of self-occupied), interest deduction shall be restricted to Rs 2 lakh.

Conditions for claiming HRA

Likewise, if the employee is a joint owner of a property and pays some rent to the other joint owner/s of the property, the HRA benefits on such payment also cannot be claimed. Tax benefits for home loans are available for interest payment as well as for repayment of the principal amount. The benefit for principal repayment is available under Section 80C within the overall limit of Rs 1.50 lakh every year. This benefit can only be availed for a residential property and only if the loan is availed from certain institutions.

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Own house in city of employment and stay on rented house in same city

So, as long as you satisfy the conditions for claiming HRA for the rented house and conditions for claiming benefits for the home loan for the house owned by you independently, there is no restrictions on your eligibility to claim both at the same time. Please note that in case you are claiming the HRA benefit but not staying in that accommodation, the Income Tax Department can take penal action against you for providing inaccurate information in your ITR. So, this twin benefit can and should only be claimed in genuine cases and not for tax evasion purpose. Though you may have to forgo the principal repayment related deduction, but you would be able to get a maximum deduction of Rs 2 lakh on interest payment of your home loan. For many people it may work out well as they may not need principal repayment benefit at all because it may be exhausted through other avenues like EPF contribution, NPS contribution, children’s education fee, life insurance and investments like ELSS, PPF, ELSS, NSC and so on. If your annual interest payment is much higher than Rs 2 lakh then there are changes that your net loss from income from house property is above Rs 2 lakh giving you full deduction benefit despite rental income.

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It is often seen that some salaried people live in rented accommodations in the city of their work while their families live in a different city in a self-owned property purchased with a home loan taken out by the employee. These employees frequently want to know if they may claim tax deductions on both their company's HRA and the tax benefit on their home loan interest and principal repayment. There can be a number of reasons why a person cannot live in a house they have. In this case, the landlord may take up rented accommodation near his place of employment. In such a case, the income tax laws allow a person to claim HRA deductions and tax benefits from the principal and interest repaid on the home loan.

“For claiming benefit of HRA under Section 10, the person should not own such property and rent is actually paid by the person,” says Surana. As already mentioned under the conditions for claiming Section 80GG, the taxpayer has to file Form 10BA to claim deduction under Section 80GG. Form 10BA can be filed online by logging on to the Income Tax E-Filing website. In Form 10BA, the taxpayer must declare the amount of rent paid and the name of the landlord.