Can HRA Be Claimed Together with Interest on Home Loan? - Home Loan Stories | Kotak Mahindra Bank

05 MAY, 2021

A smart taxpayer files and pays the taxes on time and is also aware of various ways to save on taxes. The Government of India provides various deductions and exemptions to the taxpayers to help them save taxes. However, not many know about them. Even for people who know, there is always room for confusion due to the high volume of information available and frequent tax updates. For example, do you know if you can avail tax benefits on purchased houses and rented houses together?

Yes, subject to certain conditions, you can claim both House Rent Allowance and interest on home loan under the Income Tax Act, 1961. Let us see how.

House Rent Allowance

The lowest of the following three values is allowed as HRA deduction:

  • Actual HRA received
  • 50% of salary if you are living in a metro city and 40% if living in a non-metro city
  • Annual rent minus 10% of the total annual salary


Conditions for HRA

  • The HRA benefit is available for the months you pay the rent and not for the whole year.
  • You cannot be the owner of the house property you claim the HRA for
  • You must have incurred expenditure on the payment of house rent.
  • You should be a salaried employee receiving HRA from your employer.


Interest on Home loan

If you have taken a home loan, you can claim the deduction on

  • Home loan interest as per section 24(B) of the Income Tax Act, 1961 and
  • Principal repayment under section 80C of the Income Tax Act, 1961

This tax benefit is available for the purchase or construction of a residential property.

However, there are certain conditions you need to fulfil to claim this deduction -

  • You should be the legal owner of the property in question.
  • You can avail a deduction on principal repayment up to Rs 1.5 lakh. But for this benefit, you should not sell the house within five years of possession. If you sell the property before the completion of five years, the deduction would be reversed and added back to your taxable income in the year of sale.
  • The deduction on interest repayment is allowed up to Rs 2 lakh if it's a self-occupied property. However, you can claim the deduction only after the house construction is complete.


Can You Avail Both?

There are no restrictions on claiming HRA and interest on home loan together even if both the houses are in the same city. However, there should be enough reasons for you to not stay in the house that you have bought. Often, such claims are closely monitored by the Income Tax officials. They can disallow some part of the claim if they are not satisfied, especially if the amount is relatively higher.

Moreover, to claim both, you should have all the necessary documents like the sales deed, completion certificate, etc. to justify the claim in case any query is raised.

To answer the question, yes, you can claim both the tax benefits together in the same year and reduce your taxable income significantly. However, you should maintain proper records and submit the relevant documents when required.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.