CA Paras Dawar

Assessee claim deduction of Interest on Housing Loan to acquire house property u/s 24(b) and simultaneously HRA exemption on rent paid (if he resides in property other than acquired). Further upon sale of said property, interest already claimed as deduction u/s 24(b) can be added to cost of property for the purpose of computing capital gain.   

An assessee can claim deduction of Interest on Housing loan taken to acquire a house property u/s 24(b) of the Income Tax Act. Section 10(13A) allows an assessee to claim HRA exemption in respect of rent paid for residential accommodation occupied by him. Further, where expenditure was incurred by way of interest on loan taken to acquire a house property, same shall be allowed to be added to cost for the purpose of computing capital gains upon sale of the said property.

The question under consideration is whether an assessee can claim all the aforementioned benefits together. Or to be more precise, does availment of one the benefit, precludes assessee from claiming other benefits.

 HRA Exemption

Explanation to section 10(13A) provides that HRA exemptions shall be available if both the conditions are satisfied :

(a) the residential accommodation occupied by the assessee is not owned by him ; and

(b) the assessee has actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him

Deduction for interest as per Section 24(b):

“where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23; the amount of deduction shall not exceed thirty thousand rupees:

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees*   “

* “two lakh rupees” by Finance Act 2014

Section 23(2) :

Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil.

Further, ‘at any other place’ mentioned in section 23(2)(b) includes any other place in the same city. Reference is drawn to the decision of Hon’ble High Court of Delhi in CIT v. Mr. Justice Avadh Behari Rohtagi [1986] 157 ITR 441 wherein it was held that where a person owns a house property in a city and resides at another house in the same city by virtue of his employment, exemption u/s 23(2) of the Income Tax Act, 1961 shall be available in respect of the house owned.

Upon perusal of the aforementioned provisions, it can be concluded that deduction u/s 24(b) and exemption u/s 10(13A) are altogether different. Section 24(b) operates independently of section 10(13A) and none of the two sections exclude the operation of the other. Nothing in the two sections precludes an assessee from claiming benefits under both the sections simultaneously, provided aforementioned conditions are fulfilled. Hence, it can be concluded that an assessee can claim deduction u/s 24(b) in respect of housing loan taken to acquire a house property. At the same time, exemption of HRA u/s 10(13A) can be claimed in respect of rent paid for residential accommodation occupied by him if he resides at a place other than owned by him.

Now the question that remains is “Whether assessee can include interest paid on loan taken to acquire a house property in the cost of the house property despite the same being already claimed as deduction u/s 24(b) in previous years?”

To address this issue, reference is hereby made to the decision of Chennai Bench of the Income Tax Appellate Tribunal in the case of ACIT v. C. Ramabrahmam (2012) 27 taxmann.com 104 wherein the Tribunal observed the following :

  1. After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’.
  1. A perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48.
  1. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”.

Conclusion

Upon consideration of the aforementioned discussion, it can be concluded that an assessee claim deduction of Interest on Housing Loan to acquire house property u/s 24(b) and simultaneously HRA exemption on rent paid (if he resides in property other than acquired). Further upon sale of said property, interest already claimed as deduction u/s 24(b) can be added to cost of property for the purpose of computing capital gain.

(For any feedback, comment or suggestion author may be reached at parasdawar@gmail.com)

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26 responses to “Simultaneous Claim of Interest on Housing loan & HRA; Interest deduction against Capital Gain”

  1. No Name says:

    Hi,

    I have a home loan and I want to take benifit of HRA, home loan interest under section 24 and principal amount under section 80C.

    I am leaving in my own home for which I took a home loan.

    My question:

    This is possible to get HRA benefit after showing rent receipt.

    What are the chances, income tax people will catch me?

    I know lot’s of people are doing these things and I know income tax people don’t have that much time to catch this type of situation because their intention is also to catch big fraud where crore of transaction happen.

    Is there any record where income tax people catch these type of situation?

    And what will happen if Income Tax does scrutiny?

  2. Biswajit says:

    Hi,
    I have taken home loan in Nov 2014 and paying EMI since Jan 2015. I registered the flat last month. I have not occupied it yet. I am currently living in a rented house. In the company prepared Form 16, the rent component is present. Can I also claim the home loan interest paid so far in this Fy 2015-16 tax returns?
    –Biswajit

  3. Swapan Julka says:

    Hello,

    I am a salaried employee. I am staying at a house in Mumbai, which is a little far from my workplace (office). This house is owned by my parents. I have submitted a rent receipt to my employer after taking signature on it from my mother on a revenue stamp on the receipt, after paying rent to my mother. Now, I am buying a house in the same city (Mumbai) at a building which is much closer to my office. I wish to claim tax benefit of interest which I will pay on a home loan which I am taking to purchase the house. I intend to claim both HRA and interest. Now, while I understood that I can claim the benefit of both even if both properties are in the same city, if the assessing officer sends a query asking why I continue to live in the house which is far from my office rather than the new house which is much nearer, what can I provide as a possible explanation? I wish to continue living in the same property (on rent) where I’m currently living.

    Thanks
    Regards,
    Swapan

  4. Kavita says:

    Hello

    I have purchased a property in bangalore which is currently under construction. I yad taken home loan in oct 2014. Possession wil be given by mar 2016. I opted for complete EMI instead of pre emi.
    How do i claim HRA (since i m currently staying on rent) and house interest while submitting proofs for income tax for this financial yr 2015-16??

    Thanks
    Kavita

  5. Tanvi Gupta says:

    can interest paid be part of Cost of Acquisition in case of residential property while computing capital gains.Where deduction u/s 24b has not been claimed and interest amt is capitalised.

  6. rama says:

    I have two home loans one in Pune PCMC area and the other is in my home town. In second home my parents are staying. The first one is given on rent and I am staying on rent in PMC area which different corporation. How should
    I have taken home loans for both the homes. How should I do this

  7. Gandhi Ankur says:

    Dear Sir,
    Sub. : Queries on Section 24(b) of Income Tax Act, 1961
    With Reference to the Above Subject Matter, I Would like to ask you the Following :
    A Resale House Property is Purchased By A (Salaried Person – 26 Age) & B (Aged 60 – Not Filling Return). The Share of A & B is not Defind Anywhere in the Sale Deed. The Loan is Taken from Bank on the Basis of Income of Mr. A only but bank has taken B as Co. Borrower Since his name is Reflecting in Satakhat. EMI is paid from Joint Account of A & B. Money of EMI is transferred from A’s Account to Joint Account of A & B. Margin Money Has Been Fully Paid from A’s Account. If total Interest during the Year is Rs. 1.00 Lacs & Principal is Rs. 0.25 Lacs then How Much amount we can claim u/s 24(b) in the Name of A ???
    Also tell me that is there any Case law on this ??

    You are requested to Reply Me with the Name of Case Law.

    Regards,

    Gandhi Ankur

  8. Dheeraj jain says:

    Dear Sir

    I have already posted my query on 15.06.2015 to confirm whether I can avail
    HRA & HL benefits simultaneously but regret no reply received.
    Resending my query herewith :-

    My query is that i own a house in my city which was a bank home loan case . I have foreclosed the loan by making part payment for INR 53000/- (aprox) to bank in the month of May ‘2015 . As i had planned to foreclose the home loan and get my house reconstructed from scratch after demolishing the building i have moved to a rented place same city since April’2015 onwards where i am paying rent of INR 7000 /- p.m. . Kindly advise ( 1) can i avail tax rebate on both H.L. (PRINCIPAL & INTEREST) paid in current financial year alongwith HRA benefit as it may take almost 1- 2 years to reconstruct the house. (2) Also if yes , any time limit for me to avail this joint tax rebate beneifit of H.L & HRA and any documentary supporting required to submit to my employer as i am working for a private corporate house along with my tax declration for current financial year.
    kindly revert urgently.

    thanks & b/regards
    dheeraj jain

  9. Sanket says:

    Hi,

    I have taken home loan in Feb-2014 for Rs.29,00,000/- so far I have taken disbursement of Rs. 15,00,000/- till 31-03-2015. So 14 lacs disbursement is still pending, which I will take from April-15 to Nov-15. Property is under construction and will be ready by Nov-15.

    As per attached home loan income tax certificate, I have paid
    Principal Amount: 1,73,081/-
    Interest Amount: 48,210/-
    Pre-Emi Interest: 8765/-

    I am currently staying in rented flat for which I am paying Rs. 10,000/- rent. I have not done any agreement but I can get rent receipt from my owner. My HRA for 2014-15 is Rs. 9965/- so maximum I can get HRA exemption of Rs. 7510/- as per HRA Exemption formula.

    So please advise me what I can claim for Income Tax benefit.

    Sanket

  10. Brindha says:

    Dear Sir,

    I have let me property on rent in Chennai and live in rented accommodation in another city for work purpose. Can i claim tax rebate on interest paid for the flat in chennai ? I have also claimed HRA rebate.

    Thanks for the valuable information.

  11. raju says:

    Hi,

    I and my wife jointly own apartment. As this is small apartment, I rented it and moved to other apartment in same locality. We share the rental income from rented apartment show as income from let-out property.
    Can I claim HRA.

  12. VBShah says:

    I own flat in Mumbai which is very old and not in good condition, hence I am staying on rented flat in Mumbai since last 6 month. This flat is vacant since then. Now I have purchased new property with housing loan. I need clarity on following..

    1. Scenario 1 : If I moved to this newly purchased property (as self occupied) then can I get 100% tax rebate on loan interest amount or not?

    2. Scenario 2 : If I continue staying on rent and give my this second flat on rent then can I avail HRA benifit as well as rebate on interest amount of loan? As I am still owning the old property which is not in good condition to stay or to let out.

    I would like to get maximum benifit on tax rebate.. Please advise.

  13. Naresh Punjabi says:

    I am staying in mumbai along with my mother now this flat was orignally in my name as i had taken a housing loan on this during 2003. Now in the year 2010 I have cleared the housing loan. I then have kept 33% of share with myself & given share of 33% to my mother & share of 33% to my elder brother (who is not staying in this flat) in this property after paying the gift tax with the registrar.

    Now I also have another property in Nasik for which my wife have taken a housing loan & I am the co-owner.

    My question is
    1) can i claim the principal amount paid towards this housing loan under sec 80C

    2) I am also paying my mother an sum of Rs. 8000/- per month as rent for occupying & utilising the entire flat.

    Can i claim the Principal amount paid under Sec 80C & also can i claim the amount paid as rent to my mother as HRA under sec 10 (13A).

  14. Satyajit says:

    I have the home loan ongoing for house located at remote location, Sector-Omicron1, Greater Noida. The possession has been given on March 2014.
    Since it is very inconvenient for me to come office from that remote location as no transport and company bus service is available. So, I live on rent at Delhi as it is very convenient for me to commute from rented accommodation as company bus service and public transportation is cheaply readily available.
    Kindly confirm me whether I can avail the HRA as well as Interest On Housing Loan.
    I have the bank interest certificate and rent receipt ready with me.

  15. Paras Dawar says:

    @Kaaaa……please elaborate on location of the two properties

    @Sameer M…..yes…provided you are not staying in your owned property by reason of employment, business or profession

  16. Sameer M says:

    Thanks for the important information.
    Conclusion is : If you are paying an EMI for home loan and at the same time you are also paying rent. Then you can claim both. Provided both are different homes. Irrespective of the distance of homes and even if they are in the same city you can claim both.
    Am i right Paras ?

  17. Sameer M says:

    Thanks for your valuable information.
    Conclusion is : if you are paying emi of home loan and the same house is not occupied by you and you are staying in rented house in the same city. You can claim both home loan (interest and principal) and HRA irrespective of the distance of the home bought and rented house.

  18. kaaaaaaaaaaaaa says:

    I have read your article on tax guru it was really a eye opener. I need your help if you could clarify.

    I stay in rented premises owned by my parent and i pay rent to them. Now, I am planning to buy a property in the SAME LOCATION but I plan to give it on a rent hence, my question is 1) Can I continue to claim HRA for the rent paid to my parents (my parent show that amount as their income), 2) Can I show the property purchased as let out property (actual let out to some third party) and claim interest on loan on let out property as loss from house property and claim refund AND 3) can I add the interest paid on let out property while arriving at capital value when I sell the property in future.

  19. Aditya Goel says:

    Quite informative article, one that solves a lot of queries of upcoming CA’s as well as of existing CA’s.
    Keep it up mate!

  20. Raviraj Tank says:

    Nice article

  21. CA Paras Dawar says:

    @Mr. Abhishek……Yes, increase on cost will not be limited for Income Tax purposes, but will apply for Wealth Tax purposes as well. Appreciate your observation in this respect.

    @Ashish Boundia….Yes, it will. As mentioned above in ITAT Chennai’s ruling, there is nothing in Income Tax Act that stops assessee from claiming the doubke benefit.

    @Sudarshana…..Thank you for the kind words.

  22. Abhishek says:

    If we will capitalised interest for the purpose of Cost of acquisition, then we need to pay wealth tax on the amount of interest capitalised, if assessee is liable for wealth tax?

  23. Ashish Boundia says:

    Dear Sir,

    If we add interest to the cost of property at the time of selling it will lead to double deduction.
    Please clarify

  24. sudarshana says:

    Such a good post! We have quite often, when the property is sold there will be an element of capital gain which is subject to tax. However with the application of what is stated above, adding the interest on borrowed money is added to the cost, the net effect can be negative income in many cases. We have to appreciate the TaxGuru for valuable contribution and educating the assessee. many articles are ‘news’ even to CAs.!

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