There is a huge confusion in the minds of taxpayers about whether the tax benefits in respect of House Rent Allowance (HRA)  and the benefits attached with a home loan be claimed in the sqme year. This article intends to clear the doubts in this regard.

Prerequisite for availing the benefit of HRA

HRA benefit is available to a salaried only if certain conditions are satisfied. The first and most important condition is that the employer is paying you certain sums as HRA so unless you receive any amount in the nature of HRA from your employer you can not claim any benefit in respect of HRA. The second condition is that the employee is paying rent for the accommodation occupied by him. The third condition is that the rent which you are paying should not be for the accommodation owned by you. So in cases of jointly owned residential houses, you can not pay rent to the other co owner and claim the benefit of HRA. As the benefit of HRA is available for the accommodation occupied by you only, you can not claim this benefit in case you are paying rent for an accommodation occupied by your fully dependent parents for accommodation other than where you stay. It is not that every employee can claim the HRA benefit as receipt of HRA from your employer is a precondition for availing this benefit.

As regards payment of rent for accommodations fully owned by you, you must be wondering how it is possible. Yes, this is possible in case you have leased out your property to your employer and the same property is let out to you by your employer to save taxes as one can avail tax benefit in respect of let out property in the form of 30% standard deduction as well as interest paid for money borrowed for such property.  So whether the property is fully owned or partly owned by you, you will not be able to claim the tax benefits if you pay rent for such property as discussed.

Conditions for claiming the tax benefits for home loan

The tax laws allow you two benefits for home loan. The first benefit is available under Section 80 C for repayment of home loan. This benefit can only be availed for a residential property and only if the home loan is availed from certain institutions within the overall limit of Rs. 1.50 lakhs in  a year.  For interest paid on home loan the tax benefit under Section 24(b) in respect of self occupied property is restricted to Rs. 2 lakhs in a year. For a let out property though you can claim the full benefit in respect of interest paid but will only be able to set off loss  under the head “Income from House Property” to the extent to Rs. 2 lakhs and the loss remaining unabsorbed shall have to be carried forward for eight years for set off against income from house property.

In order to avail the tax benefits for home loan whether under Section 80 C for principal repayment or interest under Section 24 (b) one important condition to be satisfied is that the house should be complete and the possession with you.. So in case of under construction properties you will not be able to claim these benefits till the construction is completed and possession taken. Both the benefits will be available if you are owner as well as co borrower of the money borrowed. The benefits shall be available to the extent of your share in the home loan serviced by you and not on the basis of your share in the property.

Simultaneous claim of HRA as well as home loan

The legal provisions in respect of HRA are contained in Section 10(13A) of the Income Tax Act and rule 2A of Income Tax Rules. These provisions nowhere  provide that tax benefit of HRA can not be claimed if you own any house. Even for the house situated in the same city where you are working, bought with home loan and which is occupied by your parents, you can still claim HRA benefits provided you stay in another house and actually paying rent for that house while claiming the benefits for home loans.

Under the income tax laws you are allowed to own more than one house but you can claim one house as self occupied and the other house/s owned by you and also self occupied are treated as let out. So logically the tax payer can have one owned house as self occupied and claim the tax benefits of home loan for such house while occupying another rented house provided you have not received any rent in respect of the house owned by you.

However in case you are claiming HRA benefit but not staying in that accommodation, income tax department can take penal action against you for providing inaccurate information in your ITR.  So this twin benefit can and should only be claimed in genuine cases and not for tax evasion.

Balwant Jain is a tax and investment expert and can be reached on [email protected], @jainbalwant on twitter.

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June 2021