Yes, you can claim income tax exemption on both house rent allowance (HRA) and repayment of home loan. If you are living in a house on rent and servicing a home loan on another property – even if both the properties are located in the same city – you can claim tax benefit for both.
But “this situation could be closely monitored by the Income Tax Department particularly where the amounts are relatively higher and may also disallow one of the claims if sufficient explanations are not available”, says Amit Maheshwari, managing partner at Ashok Maheshwary & Associates LLP.
If you live in rented accommodation and get HRA from your employer it is a customary tax-saving exercise to claim tax exemption on the same. Others who buy a house on a home loan get tax deduction against home loan interest and principal repayment.
However, things get complicated for those living in a rented accommodation and also having a residential property on home loan. Many people get into this peculiar situation owing to various reasons. As the city of residence for HRA is mostly near the place of work, the location of house property can be different. The most common condition when people need this dual claim is when they buy a property in one city and work in another. Even within a big city some prefer living on rent due to reasons such as owned house being small or commute to office being cumbersome. Since there exists substantial tax benefit on both the HRA and home loan, can you claim both the benefits at the same time?
The answer is yes. “One can claim HRA exemption and interest deduction on a housing loan simultaneously if one satisfies all of the conditions for claiming so,” says Kapil Rana, Founder & Chairman, HostBooks Ltd. Let us understand the conditions that will allow you to claim both the tax benefits together.
“If you are receiving HRA from your employer and paying rent for your accommodation then you can claim an exemption under section 10(13A) of Income Tax Act, 1961 up to the limit specified therein,” says Rana of HostBooks.
HRA is a part of salary so only salaried people can avail this tax benefit. The second condition is that HRA must be part of salary structure and a specific amount should be paid by the employer towards the same.
While the owned property can either be self-occupied or let out, the tax benefits differ. In case of self-occupied property, you can claim deduction both on principal repayment up to Rs 1.5 lakh under section 80C and tax deduction benefit on interest payment under section 24b.
“If the home is self-occupied by the taxpayer (weekly stay also meet the requirement of self-occupied), interest deduction shall be restricted to Rs 2 lakh. However, the exemption of HRA can still be claimed by the taxpayer,” says Bhalla of The Virtual Compliance.
However, in case of a let-out property you cannot claim deduction on principal repayment. Besides if your property meets the affordable housing criteria you may claim additional deduction of Rs 1.5 lakh annually under section 80EEA for interest payment.
When you have two house properties
Earlier if people had more than one house property it was mandatory for them to select one property as self-occupied while other properties were deemed to be let out. They had to pay tax on notional rental income on such properties based on its fair value. However, this changed in 2019.
The government introduced a new rule that allows people to have two house properties as self-occupied effective from the year 2019-20. So, if you have two house properties you now have the option to keep both of these as self-occupied. However, the overall tax benefit will remain the same as in case of one house property.
What happens in the case of multiple properties?
The situation becomes complicated if you have more than two house properties, although you may avail tax benefits on both.
“If the taxpayer owns more than two homes, either two out of them are self-occupied or one is self-occupied and another is not occupied owing to the employment or business or profession at another place or two out of them are not occupied owing to the same reason; the properties other than two would be deemed to let out. The notional rental income on account of such properties is chargeable to tax in the hand of taxpayer and taxpayer can claim the interest on such properties without any limit,” says Bhalla of The Virtual Compliance.
So, you can keep the maximum of two house properties as self-occupied and include rental income from the rest of the properties in your income and pay applicable taxes.
You will have to keep all your documents handy in case there is any query or scrutiny by the I-T Department which usually happens if the amount involved is substantial.