Salaried individuals are among the highest taxpayers in India. However, they also enjoy certain tax deduction benefits crafted exclusively for them. Have you ever wondered what should happen if two deductions clash with each other? Can taxpayers claim the benefit of both the deductions? One such instance for taxpayers is House Rent Allowance (HRA) and interest on Home Loans. Most people ask – can I claim HRA and Home Loan deductions together? Let’s discuss this in detail.
What is HRA (House Rent Allowance)?
House Rent Allowance is one of the components of an employee’s salary that allows them to cover the home and residence-related expenses. This is especially beneficial if the employees have to relocate to a new location for employment. It is usually determined as a percentage of your basic salary and also forms part of the Cost-to-Company structure (CTC). As per the Income Tax Act 1961, the HRA is taxable in the hands of the employee. However, you can claim the exemption for HRA under Section 10(13A) at the lowest of the following limits:
- Actual HRA received
- 40% of your salary (50% if you live in specified metro cities)
- Actual rent paid – 10% of the salary
Key conditions of claiming HRA claims in India
- Only salaried employees can claim a deduction of HRA
- You cannot be the owner of the property for which you claim the HRA
- You can claim HRA exemption only for the months for which you pay the rent
- You must have actually paid the rent expense to claim a deduction
Deduction on interest of Home Loan
Income Tax Act, 1961 also provides tax benefits for Home Loans in the form of deductions. These deductions include the following:
- Home Loan interest deduction under section 24(b) of the Income Tax Act, 1961
- Principal repayment of the Home Loan under section 80C of the Income Tax Act, 1961
- You can claim the above deduction irrespective of whether you avail of Home Loans or loans for the construction of the home. Following are the basic conditions you should keep in mind:
- For interest on a Home Loan, you can claim a deduction under section 24(b) up to ₹2 lakhs (in case of self-occupied property) or actual interest paid even if it exceeds ₹2 lakhs (in case of let out property)
- For Home Loan principal repayment, you can claim a deduction of up to ₹1.50 lakhs for each financial year under section 80C.
Can HRA and Home Loan interest be claimed together?
There is no restriction on claiming the Home Loan and HRA deduction together, even if both the houses are in the same city, i.e., the house you own and the house you reside in. You should remember that interest and principal repayment deduction is for the home you own, whereas the HRA deduction is for the rental expenses you pay.
You should possess the relevant documents supporting your deductions. This includes loan statements, sanction letters, rental receipts, bank statements etc.
Understand deductions available for Home Loan interest and principal repayment
The income tax law has provided deductions for both the interest and principal repayment relating to the Home Loan. Section 24(b) governs the interest deduction, whereas the principal repayment is governed by Section 80C. These sections can provide a significant amount of deduction and thereby can help you save a significant amount of taxes. If you are a salaried person not residing in the home you own, then you can claim both the HRA and Housing loan-linked deductions.
Calculating the tax benefits of HRA and Home Loans together
The benefits of HRA are available under the head ‘Income from Salary’ up to the limit specified above. The deduction related to Home Loan interest is available under the head ‘Income from House Property’ under section 24(b). The Home Loan principal repayment deduction is available under Chapter VI-A under section 80C.
Also Read: Complete guide to tax benefits on Home Loan
Conclusion
Most taxpayers had this dilemma - can I claim HRA and Home Loan both together or not? It can be concluded that there is no restriction under the income tax law for claiming both deductions simultaneously. However, it is important to note that you cannot claim an HRA deduction for residing in the same house you own. Another way of saving money is to opt for affordable Home Loans.
Axis Bank is a pioneering financial institution providing some of India's most affordable Home Loans. With flexible terms, affordable interest rates, and quick processing, Axis Bank helped many people fulfil their dream of owning a home. Apply for a Home Loan now with Axis Bank.
FAQs
Q: Can I claim HRA if I live with my parents?
A: Yes. If the house is in the parent’s name, you can claim HRA if you pay rent to your parents.
Q: How to claim an HRA deduction under section 80GG?
A: Section 80GG provides deductions to all people (not only salaried individuals) to claim deductions for home rent paid. However, if you are already claiming the deduction for HRA, then you cannot claim the deduction under section 80GG.
Q: Under which section can I claim HRA exemption?
A: You can claim HRA exemption under Section 10(13A) of the Income Tax Act, 1961.
Q: What are the alternatives if I cannot claim HRA or Home Loan deductions?
A: You need to determine the factors for which you are unable to claim HRA and Home Loan deductions. If it’s not allowable under income tax law provisions, then you cannot claim the same.
Q: Can I claim HRA and Home Loan deductions for a property under construction?
A: Yes. If your property is under construction, you can claim tax deductions for HRA and Housing Loan deductions simultaneously.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
