The Indian income tax law allows taxpayers to enjoy various tax benefits. However when it comes to home loan as well HRA most of the tax-payers get confused whether they can avail the benefits of both while filing tax returns or not. So, according to our income tax laws, there are no legal restrictions in claiming HRA benefits and home loan benefits at the same time.
For example, salaried individuals who live on rent can claim HRA to lower taxes. It is partially exempted from taxes. On the other hand, if the individual does not live in a rented accommodation, HRA is fully taxable.
So read this blog to understand basic conditions to be fulfilled while claiming tax benefits together:
Things to keep in mind while claiming tax benefits on HRA
If a person wants to avail tax benefit on house rent allowance (HRA), then he/she must receive HRA from his employer. The employee has to show rent paid for a residential house which is occupied by any other person, may be any dependent. On the other hand, if the accommodation is either partly or fully owned by the person, the one cannot avail tax benefits on the property.
According to rule 2A of the income tax law, the benefits of HRA are restricted to the following three amounts:
- HRA actually received.
- Excess of rent paid over 10% of basic salary.
- 50% of basic salary in case the employee is living in any of the four metro cities, or 40% in case he/she resides in any other city.
Things to keep in mind while claiming tax benefits on home loans
A person, who owns his / her property, is eligible to claim a deduction on the principal and interest components of a home loan, under Section 80 C and Section 24(b). While tax benefits under Section 80 C, are only available for home loans taken from a concerned person, for a residential house, one can avail interest benefits on both residential and commercial property if the loan is taken from any bank or financial institution.
In case of a let-out property, interest on loan is fully deductible.
Moreover, if the property is self-occupied, the benefit on home loan is restricted to Rs two lakhs per year.
Things to keep in mind while claiming both together
In case a person wants to claim both HRA and home loan tax benefit together, then he/she has to show one of the properties as self-occupied and another one as a rented unit legally.
If both the properties are in different cities, then claiming tax benefit is not a problem, but if they exist in the same city then, it may become logically difficult to establish that the taxpayer is occupying both the houses.
So, with proper planning, a person can easily claim tax benefits of both HRA and home loan together, keeping in mind all the legal provisions.