For some people, the tax-planning season has just started. You know that house rent allowance (HRA) and the deduction related to home loan repayment can lower your tax liability. You will be pleased to know, in certain cases, you can avail tax benefits from both of these. Here’s how:

HRA and Home Loan

HRA exemption can be claimed under section 10(13A) of the Income-tax Act, 1961. To calculate this exempted amount, lowest of these three is considered:

1) Actual HRA received from the employer,

2) 50% of salary if employee lives in a metro city; and 40% if the employee lives in a city other than a metro, and

3) Actual rent paid minus 10% of salary (basic plus dearness allowance plus turnover-based commission).

Home loan tax benefits are calculated in a different manner. In case of a home loan, the deduction on principal repayment can be claimed under section 80C of the income-tax Act, up to the threshold limit Rs1.5 lakh, or the actual principal repaid whichever is less. The benefit on interest portion of the loan repayment can be claimed up to the threshold limit of Rs2 lakh, under section 24b of the Act.

Tax Saving through Join Home loan

Tax Saving through Join Home loan

How to Claim Both

You can claim HRA exemption as well as the deduction for home loan repayment if you own a house which has a home loan and live in another house on rent. The caveat is, the house you own and the one you live in should be in different cities; and you should have a good reason for not living where you own the house. The reasons for this could be that you work in a different city, or even that your office is too far from your house in case the house is in a distant suburb of the city.

But remember, you may need to provide these explanations to your employer or the income-tax authority in case there is a scrutiny of the details provided by you.

Apart from this, you can also claim both these benefits if you take a home loan to buy a house that is under-construction, and during the period of construction you live in a rented house. In this case, you can claim the HRA exemption as well as the home loan deduction for that period.

However, the home loan deduction benefit can only be claimed for payment of interest component of the loan, and not for principal repayment. Also, you can claim it in five equal instalments over the years, after you get possession of the house.

The third case in which you can claim both the benefits is when you have rented out the house on which you have a home loan, and you live in another house on rent.

The reason for doing so could be that the house you own does not suit your needs, perhaps because it is too small.

In this case too, you can claim both HRA exemption and the home loan deduction, but at the same time you will have to disclose the rental income that you earn from the let out property.

House Rent Allowance (HRA) Taxability & calculation

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FCA. Amarjit Singh having vast and diversified experience of 10 years in the field of direct taxation, indirect taxation and GST View Full Profile

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7 responses to “Claim Tax Benefit on HRA as well as Tax Deduction on Home Loan”

  1. satyanarayana chepuri says:

    could you please share favorable case law for reference as It would not allow/permitted as per Income Tax Act.

  2. LAKSHMAN SINGH NEGI says:

    HELLO,

    I have taken a loan for under construction property at Greater Noida, now I am living in Delhi. I do not take exemption of interest portion of my loan as up to my knowledge it is not allowable component because property still in under construction, so kindly clarify me as your article is saying interest portion can be claim as exemption part.

    • Sujit singh says:

      You can only claim the deduction of interest from the year of completion of construction under section 24(b) under the head income from house property of income tax act.

  3. ITI Jain says:

    Apart from this, you can also claim both these benefits if you take a home loan to buy a house that is under-construction, and during the period of construction you live in a rented house. In this case, you can claim the HRA exemption as well as the home loan deduction for that period.
    Please explain how and under wich rule or section????????

  4. vidya says:

    Good Information Sir.

  5. Girish Suryawanshi says:

    How can both get Deduction of Home Loan Principal & Interest ?

    They should divide in between n ?

    Kindly advice.

    • Sujit singh says:

      Under section 24(b)
      Interest payable on borrowed capital for the period proof to the previous year in which the property has been acquired or constructed (preconstruction interest), can be claimed as deduction over a period of 5 year in equal annual installments commencing from the year of acquisition or completion of construction,
      Only interest amount can be claimed as deduction, principal amount can’t be claimed as deduction.
      Thankyou

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