Can you claim both HRA & Interest on Home Loan Deduction?

Yes, you can own a house property & claim interest on home loan deduction and at the same time pay rent and claim HRA exemption.

Under certain circumstances you may have to live in a rented accommodation. For example – You work in one city and live on rent but your family resides in another city and you buy a home where your family is. Your house is too small for your needs and you live in a rented house which is bigger than your owned house. You can’t live in your own house since it’s far from your workplace and you take a house on rent closer to your office. There may be another situation applicable to you.

The Income Tax Act does not stop you from claiming HRA exemption when you are paying rent and claiming interest on home loan deduction when you take a loan for a house.

Towards the rent payment – HRA shall be allowed.

On the interest on the home loan – deductions shall be allowed.

Also, if you have made a principal repayment, it can be claimed under section 80C.

Here’s an example –

Suppose Aryan lives in Gurgaon on rent of Rs 30,000 per month, he gets HRA of Rs 45,000. His basic salary is Rs 80,000. Aryan has taken a loan to buy a house in Bangalore, his parents reside there and he plans to settle down in Bangalore in future. The interest he pays on the loan for his house is Rs 25,000 per month.

Aryan can claim HRA as follows –

The amount exempt to be taxed from HRA will be minimum of these three:

  • HRA received = Rs 45,000
  • 40% of Basic since he lives in Gurgaon = Rs 32,000
  • Rent paid – 10% of Basic = Rs 30,000 – Rs 8,000 = Rs 22,000

Therefore HRA exempt = Rs 22,000. Remaining HRA of Rs 45,000 – Rs 22,000 = Rs 23,000 will form part of his Taxable Income under Salaries on account of HRA.

Regarding Income from House Property and claiming interest on home loan deduction – this will be allowed as follows

Gross Annual Value of the property Nil

Less: Deduction on Interest on home loan = Rs 2,00,000 (maximum allowed for financial year 2014-15)

Net Loss under the head ‘Income from House Property’ = (-) Rs 2,00,000 which will be added to his Total Income.

If you have any questions, do comment or write to us support@cleartax.in

 

 

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