Can You Claim HRA and Home Loan Tax Benefits Together?

What is House Rent Allowance (HRA)?

House Rent Allowance (HRA) is a component of a salaried employee’s salary that helps cover rental expenses. It is a tax-exempt allowance under Section 10(13A) of the Income Tax Act, subject to certain conditions. The purpose of HRA is to provide financial relief for individuals who live in rented accommodation while working in a particular location.

Factors to consider when claiming HRA:

• It is available only to salaried employees receiving HRA as part of their salary package.
• The exemption amount depends on factors like basic salary, dearness allowance, actual rent paid and the city of residence.
• The exemption is calculated as the lowest of actual HRA received, rent paid minus 10% of salary and 50% of salary if living in a metro city, or 40% if in a non-metro city.
• You must be paying rent and have proof of payment to claim HRA benefits.

Understanding Home Loan Tax Benefits in India

Owning a home financed through a loan offers significant tax advantages under the Indian Income Tax Act. These are primarily available under Section 24(b) for interest paid and Section 80C for principal repayment.

Also Read: Home Loans: All you need to know

Home Loan tax benefits include:

• Section 24(b): Deduction of up to ₹2 lakh per financial year on interest paid for a self-occupied property. If the property is let out, the entire interest amount can be claimed without limit.
• Section 80C: Deduction of up to ₹1.5 lakh per financial year on the principal repayment amount. This limit is combined with other eligible investments like PPF, ELSS and life insurance premiums.
• The property must be completed within five years from the end of the financial year in which the loan was taken, to claim the full interest deduction.
• Stamp duty and registration charges can also be claimed under Section 80C in the year they are paid.

These deductions help reduce taxable income and lower the overall tax liability.

Can You Claim HRA and Home Loan Tax Benefits Together?

Yes, it is possible to claim both HRA and Home Loan tax benefits together, provided specific conditions are met.

Possible scenarios include:

Living in rented accommodation while owning a home in a different city:

You can claim HRA for the rent you pay and also claim Home Loan benefits for the property in the other city.

Living in rented accommodation in the same city as your owned property:

This is allowed if there are valid reasons, such as your workplace being far from your owned property, making daily travel impractical.

Conditions for Claiming Both Benefits Simultaneously

• You must be paying actual rent for your accommodation, supported by rental receipts and agreements.
• The Home Loan must be in your name, and you should be the owner or co-owner of the property.
• You cannot claim HRA and Home Loan benefits on the same property.
• If the property is owned in the same city, there must be a genuine reason for living in rented accommodation.
• Maintain proper documentation to substantiate both claims in case of income tax scrutiny.

Also Read: Home Loan Benefits Vs. HRA tax benefits: Which is better?

How to Calculate Tax Benefits on HRA and Home Loan Together

When claiming both benefits, each is calculated separately as per respective provisions.

Example:
Ravi works in Delhi and lives in a rented apartment paying ₹20,000 per month. He owns a house in Pune with an outstanding Home Loan.

HRA Calculation:

• Basic salary: ₹50,000 per month
• Actual HRA received: ₹25,000 per month
• Rent paid minus 10% of salary: ₹20,000 – ₹5,000 = ₹15,000
• 50% of salary (metro city): ₹25,000
• HRA exemption: Minimum of ₹25,000, ₹15,000, ₹25,000 = ₹15,000 per month, i.e., ₹1,80,000 annually.

Home Loan Deduction:

• Interest paid: ₹2,40,000 per year → Claim ₹2,00,000 under Section 24(b) (self-occupied limit).
• Principal repaid: ₹1,00,000 per year → Claim under Section 80C.

Total annual deduction: ₹1,80,000 (HRA) + ₹2,00,000 (interest) + ₹1,00,000 (principal) = ₹4,80,000.

Documentation Required for Claiming Both HRA and Home Loan Tax Benefits

• Rent receipts for the relevant period
• Rent agreement with the landlord
• Employer’s HRA declaration form
• Home Loan sanction letter from the bank or lender
• Annual Home Loan interest certificate
• Possession or completion certificate for the property
• Proof of ownership (sale deed or allotment letter)

Common Misconceptions About Claiming HRA and Home Loan Together

• Myth: You cannot claim HRA if you own a house.
  Fact: You can, if you live in rented accommodation for valid reasons.
• Myth: Owning a house in the same city automatically disqualifies HRA claims.
  Fact: Not true, provided you can justify why you are not living in your own house.
• Myth: You cannot claim Home Loan benefits if the property is rented out.
  Fact: You can claim full interest deduction under Section 24(b) for let-out property.
• Myth: Both claims will be rejected by the income tax department.
  Fact: If you meet conditions and maintain documents, both can be claimed.

Tax Planning Tips to Maximise Benefits of HRA and Home Loan

• Keep proper and updated records of rent receipts and agreements.
• Pay rent through traceable modes like bank transfers.
• Choose the right tax regime to maximise deductions.
• Consult a qualified tax adviser for complex situations.
• Ensure that all Home Loan and property documents are in order.

Apply now for a Home Loan.

FAQs

Q.1. Can I claim HRA if my property is under construction and I have a Home Loan?

A. Yes, you can claim HRA for your rented accommodation while your own property is under construction.

Q.2. Is it possible to claim HRA and Home Loan benefits if both properties are in the same city?

A. Yes, if there are genuine reasons such as distance from the workplace or better amenities near the rented home.

Q.3. What happens if I live with my parents but pay rent? Can I claim HRA along with Home Loan interest?

A. Yes, if there is a valid rental agreement, rent receipts and actual rent payment to parents.

Q.4. How should I maintain rent receipts and loan documents for tax filing?

A. Keep them organised year-wise, either in physical or digital form, for at least 6–7 years.

Q.5. Can non-salaried individuals claim HRA and Home Loan interest benefits together?

A. HRA is for salaried individuals only. However, non-salaried individuals can claim Home Loan deductions if eligible.

Q.6. Are there any risks of income tax department rejecting simultaneous claims? How to prepare for such scrutiny?

A. Rejections may happen if conditions are not met or documents are incomplete. Maintain complete, authentic records to avoid issues.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com