Under Section 10 (13A) of the Income Tax Act, the salaried class of India receives a House Rent Allowance or HRA. As per the provisions of the same Act, one can easily allow a deduction of HRA and interest paid on the home loan. There are certain situations to claim both deductions in the same financial year.

A homeowner receiving HRA as a segment of their salary can pay their home loan back and narrow down the taxable bar income by availing house-property-related tax benefits. Certain cases follow;

Let’s explore them all in the article below.

HRA and Interest On House Loan - Explained

Let’s start with the basics. HRA is usually paid by the employer to their employee to meet the expense and cost of a rented/shared space. The Income Tax Act offers a specific exemption in the form of HRA if and only if the employee lives in a rented space. To claim a tax exemption, an employee must pay the rent of the space he/she occupies.

Regarding interest, the Income Tax Act lets taxpayers enjoy tax deductions on home loan interests. Therefore, without obstruction, one can claim tax deductions for every housing loan purchase. Additionally, if the loans are taken for other purposes like reconstruction, renovation, or purchase, the interest deduction still applies to them.

Claiming HRA on Home Loan - Simplified

There are chances when your rented house is in a different city than the one you work in. Alternatively, it could also happen that your family stays in another city where you eventually plan to buy your home.

A taxpayer can claim:

• Principal repayment under Section 80C
• Deduction on home loan interest
• HRA exemption toward loan repayment

Let’s simplify it even more for better understanding. Suppose you live in Delhi and are paying house rent of INR 15,000 a month. Your employer provides an HRA of INR 15,000. Your basic salary is INR 50,000.

Now, you have decided to take a home loan to buy your space in Hyderabad. After sanctioning the loan, you pay INR 15,000 a month on interest for the house. This is how you can claim your HRA in the above scenario.

The tax exemption that you are eligible for will be the minimum amount of the following 3 calculations:

• Your current HRA - INR 15,000.
• 40% of your Basic salary while being posted in Delhi -  INR 20,000.
• 10% of your Basic salary is subtracted from the Rent paid - INR 10,000.

Thus, the HRA exemption you will get is the minimum of the three, INR 10,000. The net taxable income now becomes INR 5,000.

Conditions For Claiming HRA & Home Loan Together!

Here are the conditions when one can claim HRA and Home Loan together:

1. Claim for Home loan and HRA in different cities

Employees working in a corporation are privileged to get an HRA from their employer. In the case that an employee decides to buy a house in another city, he/she can opt for a home loan and can claim tax deductions for HRA. They are also eligible for housing loan interest on the home loan principal amount.

2. Claim for Home loan and HRA in the same city

Consider this: The distance between the office and home of an employee is 60 kms, and they commute daily. To resolve this, the employee rents a house near the office. What happens in such a case? Can the employee claim HRA? The answer is yes. If the distance is a factor in which an employee has to rent a different house in the same city, an employee can claim the tax deduction. The distance, however, has to be more than 35 kms.

3. Claim for a rented house

There are chances where an employee rents their house out and lives in another rented place elsewhere. Here, he/she can claim an HRA deduction on the rent that is paid from his/her account. If the rented out house is on a home loan, then the claim benefit for the interest paid can also be applied for.

Conclusion

It is common for individuals to find themselves stuck in situations where they don’t know the conditions in which home-owning individuals can claim both HRA and benefits against house loans.

If you have been in the process of opting for a home loan but couldn’t do it because of tax-related queries, we have got your back. Your worries end here, with SMFG Grihashakti Home Loan. Anyone can apply for a house loan if the eligibility criteria are met.

Must Read: Tips to Reduce Your Home loan Interest Rate