In India, every person is legally required to pay income tax on the income earned in a relevant financial year subject to certain conditions.
Taxpayers always look for deductions and exemptions available under the Income Tax Law so that tax liability can be reduced.
As per IT Act, a person can avail certain exemptions / deductions in respect of house rent paid, interest & principal repayment of loan taken for residential house property.
Following are the Exemptions and deductions available for the same includes
- House Rent Allowance (HRA) provided under IT Act.
- Payment of interest amount on loan taken for acquisition or construction of residential House Property under section 24(b) of the IT Act.
- Principal Repayment of loan taken for residential House Property under section 80C of the IT Act.
As we are aware of the fact that exemption of HRA is available on payment of rent for residential house property while deduction interest & principal repayment of loan taken is available on purchase of own residential house.
Now the question arise, whether a person can take both the exemption / deduction i.e. HRA and interest & principal repayment of loan taken simultaneously or not.
In this blog we will discuss about exemption / deduction available on HRA and Home loan on House Property
Basic Concept of HRA Exemption
HRA is an allowance, which an employee receives as a part of his salary from his employer towards the payment of rent expenses. Section 10(13A) of the Act states that the HRA is allowed as deduction from taxable salary, subject to certain prescribed conditions.
According to Section 10(13A) of the Income Tax Act, 1961, HRA Exemption can be claimed subject to following conditions–
- Employee receives HRA as a part of his salary, from his employer.
- Employee resides in a Rented Accommodation.
- Employee must have paid rent against such rental accommodation.
- Employee must not be staying in self-owned house.
As per Rule 2A of the Income Tax Rules,1962 HRA exemption is least of the following –
- Actual HRA received;
- 50 percent of (basic salary + DA) for those living in metro cities (40 percent for non-metros); or
- Actual rent paid less 10 percent of basic salary + DA
Basic Concept of Tax Benefits on Home Loan
Next, we will discuss the tax benefits available on Home Loan. Whenever any person takes a home loan then he is required to make the monthly payments as EMIs. Such EMIs primarily involves two components that are Repayment of principal amount and the Interest component. The Income Tax laws allow a taxpayer to get tax benefits on both of these components individually under different conditions and up-to certain prescribed limit.
- Tax deduction on repayment of principal amount of Home Loan allowed under Section 80C of the IT Act
The first and foremost tax benefit on home loan is the tax deduction on the repayment of the home loan under Section 80C of the IT Act. Accordingly, an assesses can claim this benefit maximum up-to the limit of Rs. 1.5 Lakh per annum.
- Tax deduction available on the interest amount payable on home loan as per Section 24(b)of the IT Act
A person can also claim a tax deduction on the payment of the interest component on home loan under Section 24(b) of the IT Act. Maximum deduction available under section 24(b) of the IT Act is Rs. 2 Lakh p.a. that too subject to certain conditions.
Such as the house for which home loan was taken must have constructed within 5 years from the end of the financial year in which such loan was taken by the assesses otherwise, the limit of deduction under section 24(b) of the Act shall be reduced to Rs. 30,000 from Rs 2 lakh.
- Additional Tax benefit of Rs. 50,000 for first time home buyers – Section 80EE of the IT Act
Apart from other provisions, there is an additional tax benefit of Rs. 50,000 provided for the first time buyers under Section 80EE of the IT Act. Thus, a taxpayer who has bought a house for the first time can claim an additional benefit of Rs. 50,000 on the payment of interest amount on home loan.
Nonetheless, the total amount of home loan must not exceed Rs. 35 Lakh and the amount of home acquired or constructed shall not be exceeding Rs. 50 Lakh in order to claim benefit of Section 80EE.
Additional Conditions to avail these Tax Benefits on Home Loan
- That the construction of the house shall have completed or the house purchased shall be a ready to move in house.
- These tax benefits on home loans are available in every financial year.
- Moreover, if the taxpayer sells off this house property within 5 years of the possession then the amount of these claimed tax benefits shall be added back to the income of assesses.
Can an assesses claim tax benefits on HRA and House Loan simultaneously?
Yes, an assesses can claim both tax benefits available on HRA and House Loan simultaneously under the IT Act. Since, the IT Act has not provided any restriction on claiming both benefits simultaneously therefore, we can assume that both the deductions are available simultaneously. Although there is no restriction in claiming both kind of exemptions simultaneously but there should be reason to justify why such employee is not residing in his own house. The reason can be any of the following or similar situations:
- That the assesses has a rented house in different city for work and he buys a home in different city where his family resides.
Let’s understand this with an example,
There is a person X who is a salaried employee, resides in New Delhi. X receives HRA as part of his salary. X works and stays in Delhi in a rented accommodation and pays rent whereas his whole family stays in Rajasthan in his owned house, which he brought by taking a home loan. In this situation, X is eligible for both exemption / deduction as he satisfies all the conditions of HRA exemption as well as of House Loan tax deduction.
- That the house in respect of which home loan was taken is under construction so the assesses has to reside in rented house.
- That the assesses gives his own house on rent for any reasonable reason so he has to stay in rented house.
Conclusively, Yes, the taxpayer can claim the tax benefits of HRA and House Loan simultaneously in a same year as none of the legal provisions related to exemption of HRA and Home loan prohibits the taxpayers to do so.
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