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Claim Both HRA and Interest on Home Loan Tax Deduction

Last Updated 09th Jul 2020

HRA exemption can be claimed on rent paid, home loan interest as per section 24 and principal repayment under section 80C.

An individual can claim HRA tax exemption and home loan tax deduction under the following situations:

  • When the individual owns the house in another city.
  • When the person owns the house and is unable to move-in.
  • When the house is under construction.
  • When the individual resides in a rented house and rents his own house.
INCOME TAX CALCULATOR

Income Tax Deduction on HRA and Home Loan

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, you can claim deduction for both HRA and home loan interest subject to certain conditions.

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 principal as well as interest repaid on home loan. For instance, Ramya works with a company in Delhi and stays 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 a 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 your 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.

Budget 2020 Tax Highlights

Main highlights from the budget presented by Hon'ble Finance Minister Ms. Nirmala Sitharaman on 1st Feb 2020.

  • Option to the taxpayer choose between old income tax rate and slabs and the new ones.
  • New tax slabs offer reduction in applicable tax rate from 20% to 10% and from 30% to 20% in some cases.
  • In case the tax payer opts for new slabs and rates, no exemption or deduction can be claimed such as those on account of house rent allowance (HRA) investments, LIC premium, school fees, mediclaim etc.
  • Dividend Distribution Tax has been withdrawn, and dividend income shall be taxable in the hands of the recipient.
  • The Insurance coverage of deposit in a bank has been increased from ₹ 1 Lakh to ₹ 5 Lakh.
  • The home loan interest exemption limit of ₹ 1.50 Lakh for home loans sanctioned on and before 31st March 2020 have been extended by 1 year to 31st March 2021.

FAQs

Can we claim HRA and home loan in the same city?

Yes, you can claim the HRA deduction and the tax benefit on a home loan even when you are living in the same city in which your home is. This can happen under two conditions; either your house is under construction, or you are living in a rented house and have rented your own house.

How do I claim HRA if I stay in my home?

If you are living in your own house, then HRA deduction is not available for you.

What is the maximum HRA I can claim?

The maximum HRA you can claim is the actual HRA received. However, HRA calculation is done based on the lowest of the following:

  • Actual HRA received,
  • 50% of salary,
  • Excess rent paid over 10% of the annual basic salary.

Can I pay rent to my wife and claim HRA?

Yes, you can pay rent to your wife to claim HRA deduction as per the Income Tax Act, 1961.


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