I get many questions about whether one can claim the tax benefits for House Rent Allowance (HRA) and home loan both at the same time. The conditions for claiming HRA are different and those for claiming home loan benefits are different and are mutually exclusive.
Let us discuss the conditions in detail.
Conditions for claiming HRA
HRA benefit is available only to a salaried person if certain conditions are satisfied. The first condition is that you are getting HRA as part of your salary. The second condition to be satisfied is that you should be paying rent for the accommodation occupied by you, and the third condition to be fulfilled is that the rent being paid should not be for the accommodation owned by you.
As the benefit of HRA is available for the accommodation occupied by you only, you cannot claim this benefit in case you are paying rent for an accommodation occupied by your fully dependent parents staying separately. Since receipt of HRA is a precondition, every salaried cannot claim the benefit of HRA.
As regards payment of rent for accommodations fully owned by you, you must be wondering how can it be possible. Yes, this is possible in case you have leased out your property to your employer and the same property is let out to you by your employer. This is done to save taxes as the employee can avail tax benefit in respect of let out property in the form of 30% standard deduction against the rent received as well as interest paid for money borrowed for such property. Likewise, in cases of jointly-owned residential houses, you cannot pay rent to the other co-owner and claim the benefit of HRA. So, as discussed, whether the property is fully owned or partly owned by you, you will not be able to claim the tax benefits if you pay rent for such property.
The conditions for claiming the tax benefits for home loan
Tax benefits for home loans are available for interest payment as well as for repayment of the principal amount. The benefit for principal repayment is available under Section 80C within the overall limit of Rs 1.50 lakh every year. This benefit can only be availed for a residential property and only if the loan is availed from certain institutions.
For interest on home loans the tax benefit is available under Section 24(b). For a maximum of two self-occupied properties taken together, you can claim upto Rs 2 lakh in a year towards interest. In case you have more than two house properties as self-occupied you have to chose any two as self-occupied and the balance are treated as if they are let out and market rent for such properties has to be offered for tax. For a let out property or deemed to have been let out property, technically, you can claim benefit for full interest paid but will only be able to set off loss under the head “Income from House Property” upto Rs 2 lakh against other income during the same year. The unabsorbed loss is allowed to be carried forward for eight years for set off against income from house property.
In order to avail the tax benefits for home loan whether under Section 80C for principal repayment or interest under Section 24 (b) one important condition to be satisfied is that the house should be complete and the possession taken. So in case of under construction properties you will not be able to claim these benefits till the construction is completed and possession taken. Both the benefits will be available if you are owner as well as co-borrower of the money borrowed. The benefits shall be available to the extent of your share in the home loan serviced by you and not on the basis of your share in the property.
You can also claim interest upto Rs 1.50 lakh under Section 80 EEA for subject to satisfaction of certain conditions for buying an affordable house provided your home loan has been sanctioned between 1st April 2019 and 31st March 2022. This benefit can even be claimed for an under-construction property.
Simultaneous claim of HRA as well as home loan
The legal provisions in respect of HRA are contained in Section 10(13A) of the Income Tax Act and rule 2A of Income Tax Rules. These provisions do not provide that HRA benefit cannot be claimed if you own any house. Even for the house bought with home loan and situated in the same city where you are working, occupied by your parents, you can still claim HRA benefits provided you stay in another house and actually pay rent for that house while claiming the benefits for home loans. Even for the house in city other than where you are working and paying rent, the home loan benefits can be claimed even if you reserve the same house for your occupation. It may also happen that you have let out the house which you own and are staying in a rented house. In such a situation also you can claim both the benefits during the same year.
So, as long as you satisfy the conditions for claiming HRA for the rented house and conditions for claiming benefits for the home loan for the house owned by you independently, there is no restrictions on your eligibility to claim both at the same time. Please note that in case you are claiming the HRA benefit but not staying in that accommodation, the Income Tax Department can take penal action against you for providing inaccurate information in your ITR. So, this twin benefit can and should only be claimed in genuine cases and not for tax evasion purpose.
(The writer is is a tax and investment expert, and can be reached at email@example.com)