Claiming both HRA and Home Loan Interest Deduction in Income Tax simultaneously allowed or not?

Meaning of HRA and Housing loan interest deduction- To understand the answer to this question (Deduction of HRA and home loan together) it is first required to understand the meaning of both these terms i.e. HRA and Housing loan Interest deduction.

Meaning of House Rent Allowance (HRA)? 

HRA is a benefit that is paid by employers to employees as a part of their salaries. HRA is a component of the taxpayer’s salary that reduce his/her tax liability, provided he/she stay in rented accommodations. In case the employee lives in his/her own house and does not pay any rent, he/she cannot claim HRA exemption to save taxes. 

Following is the HRA exemption limit under the Income Tax Act

As per Act minimum of following shall be exempt-

1. Excess of rent paid annually over 10% of annual salary, in other words, rent paid – 10% of salary. 

2. 50% of Basic salary (in case residence is in a metro city) or else 40% of Basic salary (in case residence is in a non-metro city) 

3. Actual amount allotted by the employer as the HRA. 

You can also calculate House Rent Allowance (HRA) here

Provision of deduction of interest on the loan for purchase/construction of house property 

Assessee can claim a deduction on their home loan interest under section 24 of Income Tax Act, 1961 while computing ‘Income From House Property’. 

Maximum Interest deduction allowed to Rs 2 lakhs under Section 24. However, deduction on interest is limited to Rs. 30,000 instead of Rs 2 lakhs if both the following conditions are satisfied:- 

  1. The loan is taken on or after 1st April 1999 
  2. Purchase or construction is not completed within 5 years from the end of the FY in which the loan was taken.
Provided below are some of the common examples, where a person will require the benefit of HRA as well as interest deduction under section 24? 

1. A person is working in a different city and paying rent there but the family stays in a different city in a house for which the person may be paying interest as well.

2. A person owns the house smaller in size but maybe staying in another house on rent which is bigger and fit for his requirement.

3. A person may have bought the house on loan but may not be able to shift immediately due to some unavoidable reason where he is staying on rent, etc. 

The main focus must be on if the person is living in Rented property and paying rent. In that case, a person can claim HRA irrespective he claims interest on housing loan 

Can you claim HRA and home loan together for tax exemption? 

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. 

And he is paying back the home loan and getting HRA as part of their salary, can avail both the house property-related tax benefits to lower their taxable income.

Article by- CA Chirag Agarwal (Practicing Chartered Accountants)

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