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Can You Claim Both HRA And Home Loan For Tax Exemption?

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Can You Claim Both HRA And Home Loan For Tax Exemption?

If you are living on rent and servicing a loan on another property, you can claim tax benefit for both.


Highlights

  1. Income tax exemption on both HRA, repayment of home loan can be claimed
  2. However, taxman could 'closely monitor' such a situation, says an expert
  3. Income Tax Department may disallow one of the claims, he adds
Yes, you can claim income tax exemption on both house rent allowance (HRA) and repayment of home loan. If you are living in a house on rent and servicing home loan on another property - even if both the properties are located in the same city - you can claim tax benefit for both.

But "this situation could be closely monitored by the Income Tax Department particularly where the amounts are relatively higher and may also disallow one of the claims if sufficient explanations are not available", says Amit Maheshwari, managing partner at Ashok Maheshwary & Associates LLP.

Mr Maheshwari cites some cases when the tax department may not raise questions:
  • When the person may have moved from rented house to own house during the year or vice versa
  • When the person's own house could be smaller in size and the person may have moved to a bigger house rented by him/her
  • When the children of the person may be studying in the locality of the rented house and during the year it was not possible for him/her to change the school and consequently he/she was not able to move to the new house bought
But in some other cases, the Income Tax Department may question the tax exemption taken on both HRA and home loan, Mr Maheshwari adds.

"Hence, in all such situations, the individual has to ensure that the related documentations (like lease deeds, possession/completion letters, etc.) and justification regarding the same are readily available with him/her if the such query is raised," Mr Maheshwari says.

Salaried individuals who live on rent can claim HRA to lower taxes. It is partially exempted from taxes. However, if the individual does not live in a rented accommodation, HRA is fully taxable.

The deduction on HRA is the lowest of the following under Section 10(13A) of the Income Tax Act:
  • Actual HRA received from the employer
  • 50 per cent of (basic salary + dearness allowance) for those living in metro cities (40 per cent for non-metros)
  • Actual rent paid less 10 per cent of salary
On the other hand, if you are servicing a home loan you can claim tax benefits on principal and interest payments. Principal repayment, under Section 80C of the Income Tax Act, is exempted up to Rs 1.5 lakh. And on interest repayment, exemption can be claimed up to Rs 2 lakh, under Section 24.

In this year's Budget, the government had announced an extra deduction of Rs 50,000 on the interest component of home loan for first-time buyers, where the loan does not exceed Rs 35 lakh and the value of the property is up to Rs 50 lakh.


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