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Claim Both HRA and Interest on Home Loan Tax Deduction

Claim HRA and Tax Benefit on Home Loan

Last Updated 18th Apr 2021

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:

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 Highlights 2021

  • Tax Related Announcements in Budget 2021

    Taxation Related

    • Senior citizens above the age of 75 years who have only pension and interest income are now exempt from filing Income Tax Returns.
    • Tax holiday on affordable housing projects extended for 1 year till March 31, 2022.
    • Tax holiday for start-ups increased by one more year till March 31, 2022.
    • A dividend payment in REIT (Real estate investment trusts) and INVIT (Infrastructure investment trusts) exempt from TDS.

    Tax Assessment and Filing Related

    • Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns.
    • National faceless income tax appellate tribunal will be set up for individual taxpayers.
    • Dispute resolution committee will be set up for small taxpayers.
    • The time frame for reopening of income-tax assessment cases reduced from 6 years to 3 years.

    Savings Related

    • Late contribution to EPF by the employer for employees will not be allowed as a deduction to the employer.

    Others

    • A budget of Rs. 35,000 crore allotted for Covid-19 vaccines.

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.


Our News - Apr 2021
  • 2021-04-12 : Faceless tax assessment solved more than 60% of IT cases
    CBDT reported that the faceless tax assessment solved more than 60% of IT cases. It was set up with an aim to impart greater efficiency, transparency and accountability by eliminating the interface between the Assessing Officer and the assesses in the course of proceedings to the extent technologically feasible.
  • 2021-04-01 : New ITR rule for senior citizens above 75 years from 1 April
    With effect from 1 April 2021, senior citizens above 75 years of age will be exempted from filing income tax returns. This facility will be available to only those senior citizens who have no other income other than pension and interest income.
  • 2021-03-02 : CBDT extends dates for penalties and assessments
    CBDT extended the due date for penalties under the Income Tax Act, 1961 to 30th June 2021. Further, it also extended the deadline for assessments under the Income Tax Act and notices under the Benami Property Transaction Act, 1988 to 30th April 2021.
  • 2021-02-02 : Income tax won’t be taxed twice for NRIs
    Union Budget 2021-2022 proposes to provide relief from double taxation for NRIs on money accrued in foreign retirement accounts by claiming relief on tax deducted on such money in India. Currently, there is a mismatch in the year of taxability of such funds in India and the respective foreign country.
  • 2021-02-01 : Dispute resolution committee and National faceless income tax appellate tribunal to be set up
    FM proposed the setting up of the National faceless income tax appellate tribunal for individual taxpayers. Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns. Further, a Dispute a resolution committee will be set up for small companies.
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