Buying a home is a dream come true for many , but a bit of homework could reduce your tax liability enormously. Many of us are aware that interest on home loan enjoys tax benefits, but only few might know that House Rent Allowance, a component in your salary, could also be a big tax saver if it is combined with the home loan benefit.

House rent allowance (HRA) and home loan come under different sections of the Income tax act and operate independent of each other. While the former is dealt with under Section 10 (13A) Rule 2A and is claimed based on certain situations, the latter derives benefits under Section 80 C (Principal repayment) and under Section 24 (home loan interest payment) of Income Tax Act.

Before moving ahead, it is important to reiterate that House rent allowance can be claimed if;

  • The employee receives HRA as a component of his salary,
  • The employee is not the owner of the property for which he is claiming HRA,
  • The employee actually pays rent for the house he occupies as tenant and a valid rental agreement is present.

Analysis of below scenarios points out the possibilities of taking maximum advantage of HRA and home loan.

Situation 1: Self-Occupied House – If you reside in the same house for which you have taken the loan, then HRA cannot be claimed for it, but, principal repayment and interest payment under Sections 80C and 24 can be claimed respectively.

Situation 2: House owned in another city – It is common in India, people take home loan for home owned in their native city while they continue to reside in rental accommodation in a different city, due to work or other similar factors. Here, a person is eligible to claim HRA as well as principal and interest repayment.

Situation 3: House owned in a city where you work- If the home loan is taken for a property owned in a city where you work then still you can claim HRA in these possible conditions.

a)      Home under-construction – If you are compelled to live in a rental home as the home for which you have taken loan is still under-construction, then you are eligible to claim HRA and principal repayment before completion of the house. However, Interest repayment can only be claimed in five equal instalments in the financial year in which construction is complete and house is ready to use. HRA could not be claimed post-construction of the house.

b)      House ready to use but cannot be occupied due to genuine reasons – House brought in the same city as  work but cannot be occupied due to valid reasons like house being very far from work place, etc. then Income tax act permits one to claim HRA as well as home loan benefits.

However, the tax liability will arise on notional rent even if the house remains vacant.

c)      Rented own house and residing in a rented house – If a ready to use home for which home loan is taken is rented out to someone else, while you continue to reside in a rental accommodation then HRA along with the home loan benefits could be claimed.

On the other hand, since you are recipient of rental income, then the tax would be applicable to the rental income received.

Hence, in specific cases an individual can claim both HRA and home loan benefits together. Also, employers do have regulations in this regard, therefore, it is wise and advisable to cross check with the employer before you claim HRA and home loan benefits together. I hope this would clarify some your doubts regarding HRA combined with Home loan.

Source: InvestmentYogi is one of the leading personal finance websites in India

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0 responses to “Tax Aspects – HRA and Home Loan”

  1. TSKK says:

    We are constructing a new house in my native place but due to my work I am staying in another place and also receiving HRA from the Company.
    The house is in my wife name and she is a house-keeper, hence the EMI’s is going from my salary account.
    My wife is the applicant and I am the co-applicant for the Housing loan which we had taken.
    CAN I CLAIM BOTH HRA AND HOUSING LOAN BENEFITS????????
    Kindly guide me.
    Thanks,
    TSKK

  2. Mathew Abraham says:

    To Mr. Santosh Dalvi

    According to my understanding,Interest paid to even individual for Housing loan can be claimed .But principal repaid is not allowed under sect 80 c. But in your case it is not a housing loan. You need to add the rental income for calculating your taxable income

  3. Mathew Abraham says:

    To Mr Mahesh Desai
    Your daughter needs to show the notional value of rent after deducting maintenance of the flat owned by her. She can claim the 80 c and sect 24 benefits and HRA benefits as well

  4. Santosh Dalvi says:

    I wish to know an amount was borrowed for pre closure of HOme loan from Bank. Subsequently if was decided to sale that house property to the individual who gave money. Since it was part payment the sale agreement was not registered. And flat was vacant and occupied by the proposed buyer. The duration of transaction took place almost 6-7 Years. Although the flat is occupied by the buyer without the sale agreement formalities. what would be tax implication ?? Please advise.

  5. Mahesh Desai says:

    My daughter is one of the owner of flat where we used to stay together. she used to claim tax exemption u/s 80c & 24. Now she got married and staying with her in laws. She is still owner of the flat where I am staying. Her new residence i.e. in laws house is in the name of her in laws to whom she is paying Rent. Now the question is Can she claim exemption under section 80C / 24 and also HRA u/s 10(13A)Rule 2A? She is still paying Principal & interest on the loan taken for flat where I am staying.
    Kindly advice.
    BR / Mahesh Desai

  6. shankar says:

    Whether in the case of C) rented own house and residing in a rented house, benefit under section 80C for principal repayment can be claimed? 

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