Can You Avail Tax Benefits on Both HRA and Home Loan?

Paying for accommodation forms a significant portion of many of our monthly budgets. Be it for paying the home loan EMIs or for paying rent of a house. Thankfully, you can claim tax benefits on expenses made towards your house. You can claim tax deductions on the repayment money you pay towards a home loan. Similarly, you can claim HRA exemption for the rent paid for your house.

But can you claim both? Find out below.

What Is HRA?

If you are a salaried individual and have ever looked at the breakup of your monthly salary, you might have come across the term HRA in your salary breakup. House Rent Allowance or HRA is one of those many allowances that a lot of companies provide to their employees. HRA is an allowance that you can use to cover your rent expenditure and claim as an exemption in income tax.

You can claim the lowest of the following three values as HRA –

  • Actual HRA received by the employer
  • Annual rent amount – (10% of the annual salary)
  • 40% of the salary received if living in a non-metro city and 50% of salary amount if living in a metro city. Metro cities include Mumbai, Chennai, Kolkata and Delhi.

However, there are some conditions you need to fulfil in order to claim a tax deduction for HRA.

  • You can only claim this exemption when you are actually paying the rent to the landlord. It is not available for months during which you have not paid the rent.
  • HRA is calculated monthly. So, if you are moving cities (from metro to non-metro and vice versa), the HRA tax exemption would differ for different months.
  • You should not own the house you are paying rent for and should incur expenditure for the same.
  • HRA exemption is not available to self-employed individuals.

What are Home Loan Tax Benefits?

  • The principal amount paid towards home loan repayment is eligible for a tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961 from your income.
  • The interest that you pay towards the home loan is also eligible for tax deduction. You can claim the interest paid up to Rs 2 lakh under section 24(b).

Can You Claim Both?

Experts opine that there are no provisions that restrict you from claiming benefits of both, HRA and home loan.

  • If you live in a rented house while your parents live in your own house, you can claim the benefit of both HRA and home loan, even if both are in the same city. However, you should be paying the rent while having a home loan.
  • It is also applicable if you are using your owned house for your work and live in a rented house.
  • Similarly, even if you have let out your own house and are living in a rented place, you can claim the benefit of both HRA and home loan deductions.

Yes, you can claim both tax benefits, provided there is a genuine reason. You could be penalised if you claim HRA exemption but are not living in that accommodation. Moreover, you should maintain proper records and documents and present them to the income tax officials whenever asked for.