Can you claim both HRA and home loan tax benefits simultaneously ?

by khalid on 01/12/2010 · 9 comments

Ashu is working in a multinational and is staying in a rented apartment in Mumbai and has bought himself a property in Chennai for which he has taken a home loan. He finds himself in a dilemma while filing tax returns – “Can I claim both HRA and home loan benefits ?”

This seems to be a confusing factor for most tax payers. When Ashu pays rent, he is definitely allowed to claim both HRA and home loan benefits (interest payment and principal repayment).

Let us consider various possible situations and try to understand what the income tax act permits to do.

1.  You Live In Your Own House

You have purchased a house by taking a home loan and residing in the same house. Since you are residing in your own house, you will not be able to claim HRA. However, you will be able to claim tax benefits on both, the principal and interest repaid on the home loan.

2.  You Own a House In Another City

This situation was the one faced by Ashu. He resided in Mumbai but had bought an apartment in Chennai taking a home loan. Ashu will be entitled to HRA exemption and tax benefits on both, the principal and interest repaid on the home loan.

3.  Your House Can Not Be Occupied At This Point

You have bought a house in Mumbai taking a home loan and you’re currently living in Mumbai in a rented apartment because the house is under construction. In such a case, you are eligible to claim HRA.

In the case of tax breaks on the home loan, you can claim tax benefits only for your principal before the completion of your house. Once your house is completed, you can claim tax benefits on the total interest paid up to the date of completion in five equal installments in five years beginning from the year of completion.

4. You Have a House Which Is Ready For Occupation But You Cannot Reside In It

You have bought a house in Delhi taking a home loan and now you aren’t residing in it but are living in a rented apartment in Delhi itself for genuine reasons e.g. the house that you have bought is far away from your office. In such cases, the Income tax act permits the individual to claim HRA and home loan benefits which includes both principal and interest repaid on the home loan.

5. You Have Rented Your Own House And Currently Residing In a Rented House

You took a home loan and your house is now ready for occupation. You have rented the same out while you reside in a rented house. The Income tax act allows you to claim both HRA and home loan benefits. However, in such a case, since you are the recipient of rent because you have let out your own house, that income is taxable at your hands.

The Income Tax Act treats HRA and home loan deductions under separate sections independently. The two are not interconnected to each other. HRA is dealt with in section 10(13A) Rule 2A while home loans are entitled for tax benefits under section 80C (tax benefit on principal repayment) and Section 24 (tax benefit on interest payment) of the Income Tax Act. Hence, feel free to avail both tax benefits accordingly.

Claming Tax Benefits On A Home Loan

Ashu had purchased an apartment in Chennai for Rs. 40 lakh three years back. He took a home loan of Rs 30 lakh to fund this house purchase. So far, this year he has repaid an interest of Rs 3.2 lakh and a principal amount of Rs. 60,000.

Section 80C offers tax rebate on home loans up to a limit of Rs 1 lakh and Section 24 on interest up to a limit of Rs 1.5 lakh.  So, Ashu can utilize up to Rs.1.5 lakh on his interest paid and avail the tax benefits in full for the amount paid towards principal.

Calculating Tax Benefits On HRA

Ashu earns a basic salary of Rs 30,000 per month and has rented an apartment in Mumbai for Rs 12,000 per month (he is eligible for 50% of the basic pay for HRA exemption, as he resides in a metro). The actual HRA he receives is Rs 20,000.

So….

a. Actual HRA allowance from the employer  Rs 20,000

b. 50% of the basic salary as he resides in a metro (else 40%), i.e. Rs 15,000

c. The actual rent he pays for the house from which 10% of his basic pay is deducted, i.e. Rs 12,000 – Rs 3,000 = Rs 9,000

The value considered for his actual HRA exemption will be the least value of the above figures. Hence, the taxable HRA amount for Ashu per month will be Rs. 20,000 – 9,000 (available HRA deduction) = Rs. 11,000

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{ 9 comments… read them below or add one }

George Kuriakose March 29, 2011

Sir,
Really it is very nice and very very helpful to tax computation with out any doubt
thank you
by George

Reply

khalid March 29, 2011

Hi George,

Glad you liked it 🙂

khalid

Reply

rajan ranjan July 31, 2011

It’s probably too late in the day for asking it. I am e-filing the returns. The tax exemption on Home Loan is clear & is being entered in CYLA-BFLA & HOUSE_PROPERTY SHEETS. However, how do you enter the HRA exemptions in the returns as the same have not been considered by my employer.

Thanks

Ranjan

Reply

Mayur Bhandarkar September 15, 2011

My friend is involved in the following situation:

He is paying EMI for a flat, that he used to reside, in Dombivli (W) Thane District Maharashtra. He moved to Coimbatore in Tamil Nadu because he got a job in Coimbatore and he is paying rent for his accommodation in Coimbatore. His wife and his mother moved to Palakkad in Kerala as his wife got a job there and she is also staying in a rented accommodation.

My query is as follows: Can my friend claim Tax benefit for all the three? i.e.
01) Interest paid for Housing Loan
02) Rent paid for accommodation in city he is working
03) Rent paid for accommodation of family residing in another city

Reply

krunal December 26, 2011

Hi,

I have purchased a house in Apr 2010. I received the possession in the month of Nov 2011. During this period i was staying on rent.
My query is
1. Can i clam HRA till from Apr 2011 to Nov 2011
2. Can i also clam home loan tax benefit on the EMI from Nov 2011 to Mar 2012
3. Can i along with this clain the tax benefit if the pre-emi from the period Apr 2010 to Nov 2011 in five equated parts?

Thanks-
Krunal Deshmukh

Reply

khalid December 27, 2011

Hi Kunal,

I think you can claim HRA for the period Apr 2011 to Nov 2011 and you can also claim home loan tax benefit on the EMI for Nov 2011 to Mar 2012. As for as your third query is concerned I have doubt.

Thanks

Reply

subbu February 20, 2012

Gud explaination on the various scenarios

Reply

khalid February 20, 2012

Hi Subbu,

Its my pleasure, thanks for dropping by.

Reply

Harish S P January 16, 2013

Its quite a good info sir…
thanks a lot..

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