Can I Claim Both HRA and Interest on Home Loan Deduction?
Yes, you can claim deduction for both HRA and home loan interest subject to certain conditions
Does the Income Tax Act allow a person to claim deduction for HRA and also for interest on home loan? This is one of the biggest queries for salaried taxpayers and they frequently seek clarity on the same. In some situations as explained below, a person is eligible to claim both deductions.
First and foremost, an individual must be paying rent for claiming HRA deduction. Also, HRA and home loan deductions are treated under different sections of Income Tax Act. While the exemption for HRA can be claimed under section 10(13A) of Income Tax Act, deduction for principal repayment of home loan and interest on it can be claimed under section 80C and 24B respectively.
Possible conditions in which a person can claim both HRA and home loan interest benefits
- When someone owns a house in another city: In this particular situation, the homeowner is allowed to claim both HRA exemption and tax benefits on principle as well as interest repaid on home loan. For instance, Ramya is works with a company in Delhi and staying in a rented apartment. At the same time, Ramya has bought a property in Jaipur for which she has taken home loan. Since Ramya cannot stay in her own house in Jaipur as she is working in Delhi, she is eligible to claim deduction for both HRA and home loan interest and principal.
- When the house is under construction - If a person takes home loan and buys a house which is under construction, then he will be eligible to claim deduction for HRA. Once the construction of house gets over, the person will be eligible to claim tax benefits on the total interest paid till the date of house completion.
- When a person owns a house but is unable to move in - There may be several reasons that a person is not able to reside in the house he owns. For instance, his workplace may be far from the house. In this case, the homeowner might take a rented accommodation near his workplace. In such a case, income tax laws allow a person to claim HRA deduction and tax benefits on principal and interest repaid on home loan. However, the distance between the own house and place of work should be at least 35 kms.
- When a person resides in a rented house and rents his own house - If a person purchases a house through home loan but decides to stay in a rented apartment and rent out his own house. In such cases, the person is eligible to claim HRA deduction for rent paid and claim benefit for interest paid on home loan on rented out house and set it off against rental income. Note that in this case, the person cannot claim benefit for principal repayment under section 80C.