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Claim HRA and Interest on Housing Loan



hra and housing laonClaim HRA and interest on housing loan even if your office and residential house is in the same city. You may be staying in a rented property because your office is close to it and paying rent for the accommodation even though you have a residential house in the same city. The residential house may be vacant or may be used for residential purpose by some other person. You may have also taken a loan on your residential house and paying interest and principal on such loan. As per the Income Tax Act you can avail tax benefits for both the HRA and interest and principal on housing loan till you fulfill the required conditions to claim the tax benefits.

House Rent Allowance (HRA) is explained u/s 10(13A) of the Income Tax Act while Interest on borrowed capital for acquisition or construction of house property is explained u/s 24(b) of the Income Tax Act. The deduction for payment of principal component of such home loan is granted under section 80C of Deduction under Chapter VI of the Income Tax Act. The above sections are all together different and has no interlink with each. One can claim both HRA and interest on home loan irrespective of the place of stay and office until and unless he satisfies the necessary conditions to claim such deduction or exemption.

HRA – House Rent Allowance

HRA is given by the employer to the employee to meet the expenses in connection with the rent of the accommodation which the employee might have to take for the residential purpose. The House Rent Allowance so paid by the employer to his employees is taxable under the head “Income from Salaries” to the extent it is not exempt u/s 10(13A). The employee must not be the owner of the property.

In order to claim the deduction, the employee must

  • Receive HRA as a part of his salary income subject to tax,
  • Actually pay rent for the premises he occupies, and
  • Not be the owner of the premises he is paying rent for.

The amount of allowance is the lowest of the following three limits:

  • Rent paid less 10 per cent of salary.
  • An amount equal to 50% of the Salary (where the residential house is situated in Mumbai, Kolkata, Delhi, Chennai) (or) 40% of the salary where the residential house is situated in any other place.
  • The actual amount of allowance received in the relevant period during which the rental accommodation was occupied by the employee during the previous year.

Home Loan

If a person takes a loan for acquisition or construction of a house property then he can claim tax benefits. Housing loan consists of two components one is interest portion and other principal amount. The interest paid towards home loan is treated as an ‘expense’ under ‘Income from house property’ and can be claimed u/s 24(b) irrespective of the house being self occupied or let-out.

  • If the house is self occupied, he maximum limit under this section is Rs.1,50,000 and assessee don’t have to actually live in the house to claim this benefit.
  • If the house is let-out, there is no such maximum limit that can be claimed.

The interest payment is deducted from the assesses taxable income thus reducing tax liability. There is no limit on the number of houses as well as the location of the houses that assessee can claim. One can even claim deductions for interest on housing loan for both let-out and self occupied.

Maximum tax deduction for repayment principal component of home loan can’t exceed Rs.1, 00,000 under section 80C. One should keep in mind that other investments/contributions are also allowed as a deduction under section 80C, and this limit of Rs.1, 00,000 applies to all of them put together.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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