person signing loan agreement for purchase of apartment

Can you avail both HRA and Home Loan Benefits?

This is the season of extensive tax planning for a lot of people. If you have been reading up on home loan benefits, you might be already aware that house rent allowance (HRA) and the deduction with regard to home loan repayment can reduce your tax liability. In fact, the good news is that according to income tax laws, there are zero legal restrictions in claiming HRA benefits and home loan advantages simultaneously.

Income tax laws permits tax payers to declare numerous benefits, with respect to the house inhabited by the assessee – either owned or rented.

Let’s look at three scenarios of claiming only HRA, claiming only tax benefits on home loans and claiming both together:

  • Eligibility for claiming tax benefits on house rent allowance
  • Eligibility for claiming tax benefits on home loans
  • Eligibility for claiming both HRA as well as home loan benefits

Eligibility for claiming tax benefits on house rent allowance

If an individual receives HRA from his employer, only then he/she is eligible for tax benefits on house rent allowance (HRA). In case of self-employment or business, this stands invalid.

To declare this advantage, the employee should have borne the cost on rent for the residential property occupied by them. If the property is occupied by someone else, the HRA benefits won’t open to the assessee, irrespective of the fact that if the person is dependent on the assessee financially.

In case if the employee allots the property to his employer, and if the employer in return, gives it out on rent to the same employee trying to save some money, HRA cannot be claimed on this agreement.

If the employee is trying to benefit from HRA allowances, but is a joint owner of a property and tries to contribute rent to other co-owners, even then HRA cannot be claimed on this deal.

Basis the section 2A of the income tax rules, the benefits of HRA will be limited to the lowest of the three amounts below:

  • In actuals, the HRA that has been received
  • Surplus of rent paid above 10% of basic salary
  • If the employee belongs to any of the four metros, 50% of basic salary or 40% in case, he/she belongs to any other place

There is no legal clause that states the HRA benefit cannot be claimed, if the person, who pays the tax, owns a house and is already enjoying tax benefits with regard to a housing loan.

Eligibility for claiming tax benefits on home loans

If the individual is going to be the owner of property, according to Section 80C and Section 24(b), you are qualified to avail the allowance of the deduction on the principal and interest particulars of a home loan.

The tax benefits on home loan under Section 80C, are only available for home loans borrowed from specific people, for a residential property. The gains on interest are available on residential and commercial properties and also on the money borrowed from banks or any other financial entities.

In addition, the interest on money borrowed for a let-out property is entirely deductible. However, for a self-occupied property, the interest benefit is limited to INR two lakhs annually.

Eligibility for claiming HRA as well as home loan benefits

Legally, the clause permits a taxpayer to have more than one house property. But he/she has to choose for only one such property as self-occupied and pay notional rent, on the remaining properties for tax. By the same law, it can be concluded that in addition to the rented property occupied by the taxpayer, he/she can add one more house as self-occupied.

If the property owned by the taxpayer is in a city different from his workplace, there would be no further steps. But if the rented property the taxpayer owns and his/her workplace is in the same city, it might create some friction to prove that the taxpayer is occupying both of the properties.

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