Is it Possible to Claim Both HRA and Home Loan Tax Benefits?

The tax laws may prove to be a little confusing, if you are willing to claim both – House Rent Allowance (HRA) as well as Home Loans Tax Benefit. To help you get a clear understanding of the dual tax claim, let us first understand each of these separately.

Tax Benefits on House Rent Allowance

The tax benefits on House Rent Allowance can only be claimed by those who receive HRA from their employer. By this rule, it is clear that this tax benefit is only available for salaried individuals and not for self-employed professionals or business owners.

Here are some of the conditions that you need to meet, to claim tax benefits on HRA –

You must be paying rent for a residential property, which is occupied by you, and not by any other person, including your dependent parents or siblings.

The rental property you wish to claim benefit for must exist in the same city where you are employed.

You must not own the accommodation in any capacity. In this case, even if the property has been allotted to you by your employer and you pay rent on the same, you will not be entitled to claim the tax benefits.

Section 10(13A), Rule 2A of the Income Tax Act dictates that HRA benefit is limited to the lowest of the following:

(a) Actual HRA received

(b) Excess of rent paid over 10% of basic salary

(c) 50% of basic salary, for employees working in any of the four metro cities, or 40% of basic pay for employees residing in a non-metro city

Hence, if your rent does not exceed 10% of your salary, you will not be entitled to claim tax benefits for HRA.

Tax Benefits on Home Loans

The Income Tax Act, 1961, allows for deduction claims of up to Rs. 1.5 Lakh per annum on Home Loan principal repayment under Section 80C and that of up to Rs. 2 Lakh on Home Loan interest payment under Section 24(b), in case of self-occupied property. For a let out property, the deduction claim on interest payment can be made, without any upper limit. However, to claim these benefits, you must meet the following conditions –

You should be the owner of the residential property

You should have obtained the possession of the said property (either physically, or in the form of handing over of keys)

The construction of the property must be complete.

How to Claim Both – HRA and Home Loan Benefits

As an Indian taxpayer, you are entitled to own more than one residential property. In such a case, however, you are required to choose one as your self-occupied property, while the other as the let out property.

Then again, you are also entitled to receive HRA for a residential property you pay the rent for while claiming one of your owned properties as self-occupied property. It is under the presumption that an individual can have two or more residential properties in his occupation, even if all are not owned by him.

This opens up the doors for you to claim benefits under Section 10(13A) for HRA Tax Benefits and under Section 80 C and 24 (b) for Home Loan Tax Benefits. Here, it would prove to be helpful if the owned property and the rented property are situated in two different cities, as this would prove to be a logical explanation for occupying two properties simultaneously.

While there is no restriction on two being in the same city, it might prove to be a little tricky to come up with a convincing reason for the same. In such a situation, it would help if you stay in the rented house, and your dependents such as parents or siblings stay in your owned house.

You must remember, that this provision is nowhere explicitly stated, but is taken into consideration due to the absence of any specific restriction on an individual occupying more than one property to reside. Of course, to avail these, you must fulfil the conditions mentioned earlier for each of these two allowances.

You can also claim this dual benefit if you are paying rent towards an accommodation, while you have let out your owned house. In this case, you must declare the rental income in your ITR.

Now you have a clear picture regarding tax benefits claims on HRA and that on Home Loan. At this point, we would like to suggest that you should only claim these benefits if your situation is genuine, and not for tax evasion. After all, honesty is one of your most prized possessions as a responsible taxpayer of the nation!

Also Read: How to Claim Tax Benefits Available on Home Loans in India

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