ITR filing: Many employees claim an income tax deduction on the HRA or home loan repayment. Only a few know that they can claim these two deductions together. If you qualify for a tax deduction on HRA or home loan repayment simultaneously, you need to do so because what’s the harm in getting tax benefits on your hard-earned paycheck.
Housing allowance (HRA) and tax benefit linked to the HRA
The HRA is a component received by salaried taxpayers to support the payment of rent. It is permitted as an exemption from taxable wages under section 10(13A) of the Income Tax Act 1961 (the Act) subject to the satisfaction of several conditions.
Amit Gupta, MD, SAG Infotech says this is the easiest way to claim both HRA and home loan deductions. First, you must meet the HRA requirements, which include being employed and receiving the HRA as a deduction from wages. A person may be exempt from housing allowance (HRA) under section 10(13A) of the Income Tax Act 1961 (“Income Tax Act”) if two conditions are met, namely that the expenditure is actually incurred for the payment of the rent of a residential accommodation and that the residential accommodation is occupied.
Anshu Agarwal, Finance Manager (India) of Branch International, says the income tax department allows you to claim both if you can prove you cannot stay in your own home. “Own home is not in the same town where you currently work. If you work in the same town, it is a problem to travel from your own home to your place of work or the children’s school is far away and it’s a challenge to travel You have rented your own house to someone else, in which case you will have to declare it as your income, ”he said.
“A taxpayer living in the same city where they purchased their own home through a home loan may also claim both an HRA and a home loan tax benefit if the borrower must live in a rented home due to distance, size or any other reason acceptable to India’s income tax department,” said Sudhakar Sethuraman, Partner, Deloitte India.
Archit Gupta, Founder & CEO – Clear explains four scenarios where you can apply for HRA and home loan tax benefits together
1) Owns a house in one city but lives on rent in another city
When the taxpayer owns a house in one city, say “A”, but lives on rent in another city “B”, he is entitled to claims of all the benefits of the home loan and the HRA exemption.
2) Owns a house in a city but lives on rent in the same city
The taxpayer owns a home in a city but lives on rent in the same city for employment reasons, such as longer commute times to work. In such cases, the taxpayer is eligible to claim the benefits of the HRA and home loan if he can prove that he had a genuine reason to do so.
3) Rents own house for rent and lives for rent in the same city
When the taxpayer rents his own house for rent and lives for rent elsewhere for reasons such as proximity to the place of work, the school of the children or any other valid reason. In this case, the deduction up to Rs. 1,50,000 under Section 80C for repayment of the principal of the home loan will not be available. The taxpayer can claim all other interest-related deductions and the HRA exemption.
4) House under construction and living on rent elsewhere
The taxpayer has paid off a loan for his house, which is under construction, and he lives in rented accommodation elsewhere in the same city. In such a case, the taxpayer may claim the HRA exemption and all other deductions related to the home loan, except interest under Section 24(b). He can claim this deduction on interest paid after construction is completed over the next five years in equal installments.