HRA (House Rent Allowance) and interest on a home loan are two common expenses for most taxpayers. A smart taxpayer files and pays the taxes on time and is also aware of various ways to save on taxes. The Government of India provides various deductions and exemptions to taxpayers to help them save taxes. However, not many know about them. Even for people who know, there is always room for confusion due to the high volume of information available and frequent tax updates. While HRA is a component of the salary provided by an employer, interest on a home loan is an expense incurred by a taxpayer who has taken a home loan. It is a common question whether HRA can be claimed together with interest on a home loan. In this blog, we will discuss whether HRA can be claimed together with interest on a home loan.
What is HRA?
HRA is a component of the salary provided by an employer to its employees to meet their accommodation expenses. The amount of HRA is generally a percentage of the employee’s basic salary and varies based on the city of residence. HRA is exempt from tax to a certain extent and can be claimed as a deduction while filing income tax returns.
What is interest on a home loan?
Interest on a home loan is the amount of money paid by a borrower to a lender for the money borrowed to buy a home. It is an expense incurred by the borrower and can be claimed as a deduction while filing income tax returns.
The lowest of the following three values is allowed as an HRA deduction:
- Actual HRA received
- 50% of your salary if you are living in a metro city and 40% if living in a non-metro city
- Annual rent minus 10% of the total annual salary
For example, if a taxpayer is paying Rs. 15,000 per month towards HRA and Rs. 25,000 per month towards interest on a home loan, they can claim a deduction of up to Rs. 40,000 per month (Rs. 15,000 for HRA and Rs. 25,000 for interest on a home loan) while filing income tax returns.
Can HRA be claimed together with interest on a home loan?
Yes, HRA can be claimed together with interest on a home loan. If a taxpayer is paying both HRA and interest on a home loan, they can claim both as deductions while filing income tax returns.
The income from house property and claiming interest on home loan deduction will be allowed as follows:
The Gross Annual Value of the property is Nil (because his parents live in the house property)
Less: Deduction on Interest on home loan = Rs 2,00,000 (limited to Rs.2,00,000 for the self-occupied house)
Net Loss under the head ‘Income from House Property’ = (-) Rs 2,00,000 which will be added to his taxable income.
It is important to note that while claiming both HRA and interest on a home loan as deductions, the taxpayer needs to ensure that they meet the conditions for claiming the deductions. For example, while claiming HRA as a deduction, the taxpayer needs to provide proof of payment of rent. Similarly, while claiming interest on a home loan as a deduction, the taxpayer needs to provide proof of payment of interest.
Conclusion:
There are no restrictions on claiming HRA and interest on a home loan together even if both houses are in the same city. However, there should be enough reasons for you to not stay in the house that you have bought. Often, such claims are closely monitored by Income Tax officials. They can disallow some part of the claim if they are not satisfied, especially if the amount is relatively higher.
Moreover, to claim both, you should have all the necessary documents like the sales deed, completion certificate, etc. to justify the claim in case any query is raised.
To answer the question, yes, you can claim both tax benefits together in the same year and reduce your taxable income significantly. However, you should maintain proper records and submit the relevant documents when required. If you have any further questions or concerns regarding whether HRA can Be claimed Together with Interest on Home Loan, reach out to us today. PulseHRM is always available to assist you with any tax-related matters.
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