home loan repayment

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

Can I Claim Tax Benefit On Both HRA And Home Loan Repayment?

The answer is YES & NO; Individuals living in rented accommodations can claim the rent paid as tax rebate.  Salaried people who reside in leased properties can use the House Rent Allowance (HRA) to reduce their taxes – partially or entirely. This subsidy is intended to cover the costs of rental housing. This allowance is totally taxable if you do not reside in rental housing.

If you are still claiming  under the ‘Old Tax Regime’, then HRA is an important component in your tax calculations. HRA is a component in your salary; it is usually calculated as 50% of your ‘Basic Pay’. So someone paid a basic pay of Rs. 50,000, will be paid an HRA of Rs. 25,000.

HRA & Home Loan Tax Benefits – A Glance

Home Loan HRA
On Principal Repayment On Interest Paid On Interest Paid On Rent Paid
Under section 80C Under section 24 Under Section 80EE / 80 EEA Under section 10 (13A)
Up To Rs.1.5 lakhs Up to Rs.2 lakhs  Rs. 50,000/ Rs. 1.5 lakhs Partial exemption only allowed. The HRA exemption amount allowed shall be the lesser of the following:

•     Actual allowance received during the relevant period, or

•     Rent paid – 10% of the relevant period’s pay, or

•     40% of the relevant period’s salary (50% for rented accommodation in Delhi/Mumbai/Kolkata/Chennai)

 

When Can One Claim Both HRA And Home Loan Interest Rebate?

Both HRA and interest on a home loan may be claimed by an employee because they are separate provisions. Possible circumstances and whether the Act allows the taxpayer to claim the benefit of both:

Condition Is it possible for a taxpayer to claim both the HRA exemption and the interest deduction on a house loan? Example
When a taxpayer owns a home but lives in a rented dwelling in a different city due to work or for any other reason. Yes Rahul owns a home in Mumbai that he purchased with the help of a home loan. He is making the home loan repayment with interest.

He lives in rented accommodation in Noida as a result of his work and receives HRA from his employer.

As a result, Rahul is entitled to a deduction for such interest under Section 24(b) of the Act, as well as an exemption from HRA under Section 10(13A) of the Act.

When a taxpayer owns a house property on which he has paid a home loan but lives in a rented house in the same city due to employment, children’s schooling demands, or any other fair and legitimate cause Yes Amit owns a house in South Chennai that he purchased with the help of a home loan. Because of his job, he lives in rented housing on the outskirts of Chennai and receives HRA from his employer. As a result, Amit is entitled to a deduction for such interest under Section 24(b) of the Act, as well as an exemption from HRA under Section 10(13A) of the Act. This is applicable only if the distance between his own house and his workplace is at least 35 KMs.
When the taxpayer’s house is under construction and he or she is living elsewhere on rent Yes The taxpayer, on the other hand, can deduct the interest on such under-construction property for the next five years in equal increments beginning with the year in which construction is completed.
When you rent your own home and live somewhere else. Yes Sujata owns a home in Cochin that she rents to a tenant. She lives in a rented house closer to her office. She is qualified for HRA exemption for rent paid as well as interest deduction on her house loan. However, she must present rental receipts for the rented residence as well as the rent she pays in order to compute her tax due.

 

Requirements For Claiming HRA Exemption

Under both the new and old regimes of the Act, HRA is completely taxable in the hands of the employee. However, under the prior regime, one might claim an exemption from such an allowance under Section 10(13A) of the Act in order to minimize their taxes if all of the following conditions were met:

  • HRA is paid as part of the taxpayer’s salary if he or she is a salaried employee.
  • The taxpayer lives in rented housing.
  • The employer obtains rent receipts or a rental agreement.
  • If the employee pays more than Rs. 1 lakh in rent per year, he must submit the landlord’s PAN to his company. If PAN is not available, the landlord must supply you with a declaration together with his name and address, which you must register with your employer.
  • If the landlord is not an Indian resident (an NRI), a tax of 31.2% (base rate of 30% + a cess of 4%) should be deducted at the source before the rent is paid

Tax Benefits Available On Home Loan Principal And Interest Repayment

A homeowner who has taken out a home loan to purchase or build a home can benefit from tax breaks under the following sections:

  • Principal repayment of a home loan under section 80C of the Act
  • Payment of interest under section 24(b) of the Act
  • Payment of interest under sections 80EEA or 80EE of the Act

Salaried individuals can claim a number of tax benefits with regards to HRA and Home Loan interest and principal repayment. It is important to know the relevant sections and the maximum rebate allowed to avail these benefits.

 

 

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