Can We Claim Both HRA and Tax Deduction On Home Loan Interest?
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Responsible taxpayers pay taxes on time and are aware of how much hra can be claimed to save on taxes. The Government provides hra deduction in income tax and exemptions to save on taxes. However, not many know how to get house rent deduction in income tax returns (ITR). Even people who know how to claim HRA, are not completely clear. Read ahead and learn how to claim HRA in ITRs can claim both House Rent Allowance and interest on home loan under the Income Tax Act, 1961. Let us see how.

What Is HRA (House Rent Allowance)?

HRA, or House Rent Allowance, is a part of an employee's salary paid by their employer to cover housing expenses. It's a financial benefit to help employees meet the cost of renting a place to live. The HRA amount is usually a percentage of the basic salary and can vary based on factors like the location of the residence and the salary package. HRA under Section 80C of the Income Tax Act is subject to tax deductions.

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
  • Actual rent paid minus 10% of the total annual salary

Key Conditions of Claiming HRA Claims in India

  • 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.

HRA Deduction on Interest of Home loan

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

  1. Home loan interest as per section 24(B) of the Income Tax Act, 1961 and
  2. 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 Claim Both HRA And Home Loan Benefits Together?

There are no restrictions on claiming HRA and interest on a home loan together, even if both houses are in the same city. However, there should be enough reasons for you not to stay in the house you 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 tax benefits together in the same year and significantly reduce your taxable income. However, you should maintain proper records and submit the relevant documents.

Understanding The Deductions Available On Home Loan Interest And Principal Repayment

Knowing the deductions available for home loan interest and principal repayment is essential to save taxes. Being a salaried individual who rents a home, you can reduce your taxable income by taking advantage of House Rent Allowance (HRA) and home loan deductions.

Simply provide proof of rent payments to claim HRA exemption, which is particularly beneficial if you have a home loan. Deductions on home loan repayments are available under sections 24(b) and 80C of the Income Tax Act. Section 24(b) covers interest payments, while HRA under section 80C includes principal repayment. These deductions can be substantial, significantly reducing your overall tax liability.

You can optimise your financial planning and achieve the maximum tax benefits by strategically combining HRA and home loan deductions. It's a good idea to seek the advice of a tax expert to ensure you're taking full advantage of these provisions.

Calculating The Tax Benefits Of HRA And Home Loan Together

Claiming HRA and Home Loan tax benefits can be advantageous if you meet certain criteria. Here's a breakdown of how you can maximise your tax savings:

HRA Benefits: You can claim HRA benefits if you're a salaried individual living in rented accommodation. You must provide rent receipts and a rent agreement to your employer. The amount exempted from tax is calculated based on the lowest of three factors: actual HRA received, 50% of your basic salary (or 40% if you live in a non-metro city), or actual rent paid minus 10% of your basic salary.

  • Home Loan Benefits: If you've taken a home loan, you can claim deductions on your loan's principal (under Section 80C) and interest (under Section 24) portions.
  • Joint Benefits: In some cases, you can claim HRA benefits while also benefiting from the home loan deductions if you're staying in a rented property for work purposes and own a property in another city.

Understanding the tax rules and consulting a tax advisor for personalised guidance to maximise your savings is important.

Read Also: What is EMI? Full-Form & Meaning

Frequently Asked Questions

1.) Can I claim HRA if I live with my parents?

Yes, you can claim HRA if you live with your parents. All you need is to pay them rent, and they should include it in their income. Additionally, you must meet other HRA eligibility criteria as per tax laws.

2.) How to Claim GRA Deduction Under Section 80G?

To claim a deduction under Section 80G for donations, make sure your donation is made to eligible institutions with 80G certification. Keep donation receipts and details of the organisation handy when filing your income tax return. Also, the deduction amount varies based on the donation and is subject to specified limits.

3.) Under Which Section Can I Claim HRA Exemption?

You can claim HRA exemption under Section 10(13A) of the Income Tax Act if you meet the necessary conditions and submit rent receipts to your employer. Moreover, the exemption is calculated based on your actual HRA received, rent paid, and salary structure.

4.) What Are the Alternatives If I Cannot Claim HRA or Home Loan Deductions?

If you cannot claim HRA or home loan deductions, you can consider other tax-saving options like investing in eligible tax-saving instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), or Equity-Linked Savings Schemes (ELSS) under Section 80C or explore other deductions available under the Income Tax Act.

5.) Can I Claim HRA and Home Loan Deductions for a Property Under Construction?

You can claim HRA if you live in a rented property while your own property is under construction. However, home loan deductions (Section 24 and Section 80C) are applicable only after the construction is complete.

6.) What Happens If My Rent Receipts or Home Loan Documents Are Incomplete?

Incomplete rent receipts or home loan documents may lead to difficulties in claiming HRA or home loan deductions. It's crucial to maintain accurate and complete records. To do that, consult a tax expert to explore solutions or rectify any issues with your documentation.

7.) What is the maximum HRA amount you can claim?

You can claim 50% of your basic salary (if you reside in a metropolitan city) and 40% of your basic salary (if you live in a non-metropolitan city).

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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.