In India, owning a home is considered one of the biggest achievements in life. It is a symbol of stability, security, and financial independence. However, buying a home is not an easy task as it requires a considerable amount of money. To make it easy for people to buy a home, the government offers various tax benefits to homebuyers. One of the popular tax benefits is claiming deductions on home loans. On the other hand, for those who do not own a home, the government provides an allowance called House Rent Allowance (HRA) to ease the burden of rental payments. The question is, can we claim HRA and home loan deductions simultaneously? Let’s find out.
What is HRA?
House Rent Allowance (HRA) is a type of allowance paid by employers to employees who live in rented accommodation. HRA is a component of an employee’s salary, and it is provided to the employee to cover the expenses of rented accommodation. HRA is a tax-free allowance, but the amount of HRA exemption is subject to certain conditions.
What is a Home Loan?
A home loan is a loan provided by banks or financial institutions to individuals for the purchase or construction of a home. Home loans come with different types of interest rates, and the interest paid on the home loan is eligible for tax deductions under certain conditions.
HRA and Home Loan Deductions
One of the most common questions that taxpayers ask is whether they can claim both HRA and home loan deductions simultaneously. The answer is yes; you can claim both HRA and home loan deductions simultaneously, provided you meet the conditions laid down by the Income Tax Act.
HRA Exemption and Home Loan Deductions
As mentioned earlier, HRA is a tax-free allowance, and the amount of exemption depends on certain conditions. The amount of HRA exemption is calculated as follows:
The minimum of the following is exempt from tax:
- Actual HRA received from the employer
- Rent paid minus 10% of the basic salary
- 50% of the basic salary if the employee lives in a metro city or 40% of the basic salary if the employee lives in a non-metro city.
Home loan deductions, on the other hand, are allowed under section 24 and section 80C of the Income Tax Act. Under section 24, interest paid on a home loan is eligible for a deduction of up to Rs. 2 lakh per year, provided the home loan is for the purpose of the purchase or construction of a home. Under section 80C, the principal amount of the home loan is eligible for a deduction of up to Rs. 1.5 lakh per year.
Thus, if you are living in a rented accommodation and also paying home loan EMIs, you can claim both HRA exemption and home loan deductions. However, there are certain conditions that you need to meet to claim both.
Conditions to Claim HRA Exemption and Home Loan Deductions
To claim HRA exemption and home loan deductions simultaneously, you need to meet the following conditions:
- You must be living in a rented accommodation and paying rent for the same.
- You must have taken a home loan for the purpose of purchase or construction of a home.
- The home loan should not be for a property that is let out or used for business purposes.
- You must have possession of the property for which the home loan is taken.
- You must be living in a different city from the city where the property is located.
If you meet the above conditions, you can claim both HRA exemption and home loan deductions in your income tax return.