- Date : 18/10/2022
- Read: 4 mins
A taxpayer living in a rented accommodation and who is repaying a home loan can claim tax benefit on both.
Tax may be an inevitable expense. However, there are several ways to lower your tax output. In India, your home can help you reduce your tax liabilities with a number of tax provisions. You can claim a tax deduction on the repayment of a home loan and on Home Rent Allowance (HRA). Find out how this works.
The Income Tax Act, 1961, offers a home loan tax benefit on the repayment of a home loan by a taxpayer under several of its sections. If you have made a principal or interest payment against a home loan during the financial year, you can claim tax deductions, subject to the upper limits defined in the Act.
In addition to this, HRA is an exemption from your total income that is provided if you have lived in a rented accommodation at any time during the previous financial year. The HRA exemption rule is provided based on the formula provided by the Income Tax Act, 1961.
Just as you can live in a rented house and buy a home of your own through a home loan, you can claim home loan and HRA tax benefits as well.
Claiming HRA benefits
House Rent Allowance is a part of your income, and exemption on HRA can be claimed only if you lived in rented accommodation. The HRA calculated as per the Income Tax rule is eligible as an exemption. You can claim a tax deduction on the following, whichever is lower:
- The total HRA received
- 50% of the basic salary + Dearness Allowance (DA) if you are living in a metro city
- 40% of the basic salary + DA is you are living in a non-metro city
- The actual rent paid minus 10% of the basic salary + DA
Claiming home loan tax benefits
The home loan tax benefit includes the following:
- A maximum amount of Rs 2 lakh for home loan interest paid during the year under Section 24;
- Up to Rs 1.5 lakh can be claimed as Income Tax rebate on home loan on principal repayment during the year under Section 80C;
- An additional Rs 1.5 lakh tax benefits on home loan is available for interest paid on home loan sanctioned between 1 April 2019 and 31 March 2022 by a first-time homebuyer on a home with stamp duty below Rs 45 lakh under Section 80EEA.
- An additional deduction of up to Rs 50,000 under Section 80EE if the loan amount is Rs 35 lakh or less, and the property’s value is not more than Rs 50 lakh. The loan should be sanctioned between 1st April 2016 and 31st March 2017.
Related: Home loan vs HRA: Which offers higher tax savings?
Can I claim HRA and home loan both for tax savings?
While you can claim Income Tax exemption for rent paid as per your rent agreement, homeowners can claim deductions on their home loan repayment. However, what if you have a home and also live in a rented accommodation? Subject to certain conditions, you can claim an exemption for both.
- If your home is in one city and you stay on rent in another, you can claim both home loan and HRA benefits.
- If you own an under-construction property while claiming HRA, you can claim the home loan interest paid on such property after getting possession of it.
- You can even own a house and rent another in the same city, and claim both HRA and home loan benefit. However, the two houses should be at least 35 kilometres apart. Salaried individuals may have a genuine need for such an arrangement if the workplace is situated far from the owned property.
To sum up, if you fulfill the prescribed conditions, you can claim both HRA and home loan benefits. Don’t forget to retain your rent receipts and obtain the home loan repayment statement to avail of both of these tax benefits.
Tax may be an inevitable expense. However, there are several ways to lower your tax output. In India, your home can help you reduce your tax liabilities with a number of tax provisions. You can claim a tax deduction on the repayment of a home loan and on Home Rent Allowance (HRA). Find out how this works.
The Income Tax Act, 1961, offers a home loan tax benefit on the repayment of a home loan by a taxpayer under several of its sections. If you have made a principal or interest payment against a home loan during the financial year, you can claim tax deductions, subject to the upper limits defined in the Act.
In addition to this, HRA is an exemption from your total income that is provided if you have lived in a rented accommodation at any time during the previous financial year. The HRA exemption rule is provided based on the formula provided by the Income Tax Act, 1961.
Just as you can live in a rented house and buy a home of your own through a home loan, you can claim home loan and HRA tax benefits as well.
Claiming HRA benefits
House Rent Allowance is a part of your income, and exemption on HRA can be claimed only if you lived in rented accommodation. The HRA calculated as per the Income Tax rule is eligible as an exemption. You can claim a tax deduction on the following, whichever is lower:
- The total HRA received
- 50% of the basic salary + Dearness Allowance (DA) if you are living in a metro city
- 40% of the basic salary + DA is you are living in a non-metro city
- The actual rent paid minus 10% of the basic salary + DA
Claiming home loan tax benefits
The home loan tax benefit includes the following:
- A maximum amount of Rs 2 lakh for home loan interest paid during the year under Section 24;
- Up to Rs 1.5 lakh can be claimed as Income Tax rebate on home loan on principal repayment during the year under Section 80C;
- An additional Rs 1.5 lakh tax benefits on home loan is available for interest paid on home loan sanctioned between 1 April 2019 and 31 March 2022 by a first-time homebuyer on a home with stamp duty below Rs 45 lakh under Section 80EEA.
- An additional deduction of up to Rs 50,000 under Section 80EE if the loan amount is Rs 35 lakh or less, and the property’s value is not more than Rs 50 lakh. The loan should be sanctioned between 1st April 2016 and 31st March 2017.
Related: Home loan vs HRA: Which offers higher tax savings?
Can I claim HRA and home loan both for tax savings?
While you can claim Income Tax exemption for rent paid as per your rent agreement, homeowners can claim deductions on their home loan repayment. However, what if you have a home and also live in a rented accommodation? Subject to certain conditions, you can claim an exemption for both.
- If your home is in one city and you stay on rent in another, you can claim both home loan and HRA benefits.
- If you own an under-construction property while claiming HRA, you can claim the home loan interest paid on such property after getting possession of it.
- You can even own a house and rent another in the same city, and claim both HRA and home loan benefit. However, the two houses should be at least 35 kilometres apart. Salaried individuals may have a genuine need for such an arrangement if the workplace is situated far from the owned property.
To sum up, if you fulfill the prescribed conditions, you can claim both HRA and home loan benefits. Don’t forget to retain your rent receipts and obtain the home loan repayment statement to avail of both of these tax benefits.
