Can you claim both HRA and Home Loan Interest Deduction under Income Tax Act, 1961?

What is House Rent Allowance?

House Rent Allowance (HRA) is an amount which is paid by employers to employees as a part of their salaries. It is a kind of exemption, which can be provided only if the employee is living in rented accommodation. In case the employee lives in his/her house, they cannot claim HRA. It is only for employees living in rented accommodation.

How is HRA computed?

HRA depends on the salary of an employee.

It shall be the least of the following:

1. Excess of rent paid annually or 10% of annual salary
2. 50% of basic salary (in case residence is a metro city), or else 40% of basic salary (in case residence is a non-metro city)
3. The actual amount allotted by the employer as HRA.

Is any deduction available w.r.t interest on loan for purchase/construction of house property?

• Deduction u/s 24(b)– Homeowners can claim a deduction on their home loan interest if the owner or his family resides in the house property under Section 24(b) of Income Tax Act, 1961 while computing the ‘Income from House Property’.

The interest deduction is restricted to Rs. 2 lacs under Section 24 of the said Act. However, the deduction on interest is limited to Rs. 30,000 instead of Rs. 2 lacs, if both the following conditions are satisfied:

• The loan is taken on or after April 1, 1999.
• Purchase or construction is not completed within five years from the end of the FY in which loan was taken.

 Deduction u/s 80EEA– An individual can claim a deduction of up to Rs. 1,50,000 under section 80EEA subject to following conditions:

• The financial institution has sanctioned the loan during the period beginning on 01/04/2019 and ending on the 31/03/2020;
• Stamp duty value of the residential house property should not exceed Rs. 45 lakhs;
• The assessee should not own any residential house property as on the date of sanction of the loan; and
• The assessee should not be eligible to claim deduction under section 80EE of the Income Tax Act, 1961.

What are the instances where a person will require the benefit of HRA as well as interest deduction under section 24?

Provided below are some of the common instances, where a person will require the benefit of HRA as well as interest deduction under section 24?

1. where a person may be working in a different city and paying rent there, but the family stays in a different city in a house for which that person may be paying interest
2. where a person owns the house smaller in size but maybe staying in another house on rent which is more significant and fit as per his requirement
3. where a person may have bought the house but might not be able to shift immediately due to vicinity of the existing school of the children where he is staying on rent, etc.

The initial test is if the person is living in a Rented House and has a person paying rent on the property. In that case, a person can claim HRA irrespective he claims interest on housing loan.

Can you claim both HRA and Home Loan deduction?

For instance, there can be a situation where a person works in one city where he/she lives on rent, and his/her family resides in another city, where the person has bought a home where his/her family is residing.

Homeowners, who are paying back their home loan and getting HRA as a part of their salary, can avail the tax-related benefits from both under different sections of the Income Tax Act to lower their taxable income.

Computation of Income from House Property:

Net Loss of Rs 2 lakhs will be added to his taxable income under the head ‘Income from House Property’.

As both home loan interest tax exemption and HRA fall under different sections, Assessees are allowed to claim both HRA and home loan benefits. The income tax department has made provisions to ensure citizens owning a house can avail the benefit of interest deduction, but if you are also staying in a rented flat, then you will not miss out on tax benefits.

In conclusion, House Rent Allowance (HRA) is an exemption provided to employees living in rented accommodation. HRA is computed based on salary and is the least of three criteria. Additionally, homeowners can claim deductions on home loan interest under Section 24(b) and Section 80EEA of the Income Tax Act. It is possible to claim both HRA and home loan deductions if the circumstances warrant it. The income tax department has provisions to ensure citizens can avail of these benefits and not miss out on tax advantages.

"Maximize your tax benefits! Learn how to claim both House Rent Allowance (HRA) and Home Loan deductions under different sections of the Income Tax Act. Lower your taxable income and save more today!" for more related queries, contact us at info@manishanilgupta.com

Disclaimer: This content is purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such