Tax planning is an essential aspect of one’s financial goals. Through tax planning, individuals can save taxes and reduce their tax liability. The Government of India offers various exemptions and deductions to taxpayers to help them minimise their tax burden. HRA (House Rent Allowance) and Home Loan repayments, including interest payments, are among the various deductions available to taxpayers.
For salaried individuals who have limited tax-saving options, deductions related to HRA and Home Loan repayments can offer great relief. However, many taxpayers often ask, “Can we claim HRA and Home Loan benefits together” and they are under the impression that they can either claim a deduction on Home Loan repayments or HRA. That is not the case. According to income tax provisions, taxpayers can claim deductions for both HRA and Home Loan repayments together. Let us find out.
What are the tax benefits on HRA and Home Loan interest?
HRA, or house rent allowance, is a component of one’s salary that one receives if one resides in a rented house. For tax purposes, the HRA is exempt up to a limit under income tax under Section 10(13A). However, the HRA will be fully taxable if a taxpayer resides in their own house.
Taxpayers can avail of the lowest of the values as HRA deduction:
- The actual HRA received
- If the taxpayer resides in a metro city, then 50% of the salary, otherwise 40% of the salary.
- Annual rent minus 10% of the total annual salary of the taxpayer.
If taxpayers have taken a Home Loan to buy a property or for the construction of a residential property, they can claim a deduction on the following:
- Principal repayment of up to Rs 1.5 lakh u/s 80C.
- Home Loan interest payments up to Rs 2 lakh u/s 24(B).
Now, let’s answer taxpayers’ question: Can we claim HRA and Home Loan benefits together?
How can you claim both HRA and Home Loan interest together?
There can be three situations where taxpayers can claim HRA and Home Loan interest deductions together.
1. Owns a house in one city but living on rent in a different city
Suppose a taxpayer has opted for a Home Loan and applied online to buy a house. However, the taxpayer moves to another city due to job requirements and lives on rent over there. In this scenario, the taxpayer can claim deductions on both HRA and Home Loan interest repayments.
2. Owns a house but living on rent in the same city
In metro cities, travelling may be a challenging task. Due to this, many salaried individuals look for a house near their workplace. However, it could be possible that they have already taken out a Home Loan to buy a house in the same city, but now they are moving to a rented place in the same city due to job-related reasons.
In this case, the taxpayer can claim deductions for both HRA and Home Loan interest repayments together if they can justify that the owned property is quite far from their workplace and, therefore, have rented a house.
3. When the house is under construction and a person is living in a rented accommodation
Suppose a person has opted for a Home Loan and applied online to construct a residential house, but until the house is under construction, the person lives in a rented house. In that case, until the house is completely ready and the person is ready to move, the person can claim both HRA and Home Loan repayment deductions.
Conclusion
A salaried person who is receiving HRA and is also paying interest and instalments of the Home Loan can avail of the benefit of both Home Loan repayment and HRA deductions subject to the fulfilment of the cases mentioned above. Taxpayers must maintain all the documentation related to Home Loan repayments and HRA to avoid any problems if their income tax return comes under scrutiny later.
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