A number of salaried consumers take a home loan to acquire a residential property, but do not stay in that property for various reasons. They stay in rented premises for which they pay rent. If they are receiving a house rent allowance from their employer, a question frequently arises-whether they can claim exemption of their HRA based on the rent actually paid by them, as well as the interest payable on the loan taken to acquire the owned property.

To answer this, we need to look at the relevant part of the I-Tax Act and the rules. As per income tax act both benefits are independent of each other and there is no relation what to so ever in claiming HRA exemption and House loan interest, if person fulfill conditions to avail benefit given in ACT than he can claim, and condition is to be checked separately for each section.

The exemption of HRA is covered under Section 10 (13A). Simply speaking, the only conditions for allowing the exemption of HRA are:-

• Rent must actually be paid by the assessee (legal term for the person whose tax liability is being worked out) for the rented premises which he occupies
• The rented premises must not be owned by him

As long as the rented premises are not owned by the assessee, the exemption of HRA will be available up to the limits specified in the relevant rules. There is nowhere mentioned about any effect on the exemption because of ownership of any other property.

Let us now turn to the deduction of interest payable on a home loan. Contrary to popular perception, the interest is not a straight deduction allowed from the salary income. The deduction is actually allowed while calculating the “income from house property”.

The relevant sections are Section 22 to Section 27. Again putting it very simply, the calculation of income from house property is done as under:

Rental income (net of municipal taxes) = Annual Value
Less : 30% of A as a standard deduction
Less: interest payable on any loan taken for acquisition or construction of this property
Income from House property A-S-I

“Tax benefits” can be claimed on both the principal and interest components of the home loan as per the Income Tax Act. These deductions are available to assesses, who have taken a loan to either buy or build a house.

Thus, as per income tax act both benefits are independent of each other and there is no relation what to so ever in claiming HRA exemption and House loan interest, if person fulfill conditions to avail benefit given in ACT than he can claim, and condition is to be checked separately for each section.

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