Can You Claim HRA and Home Loan Interest Deduction Together
30 December, 2024
Synopsis
- You can claim both HRA and Home Loan interest deductions if you meet specific conditions.
- HRA allows deductions based on actual rent paid or a percentage of salary, while Home Loan interest under Section 24(b) offers deductions for both self-occupied and rented properties.
- You can claim these deductions if you live and work in different cities, rent during property construction, or rent out your own property.
Can you claim Home Loan interest and HRA deduction in Income Tax together? Yes, Indian taxpayers can claim both HRA (Housing Rent Allowance) and home loan interest deductions under certain conditions. By claiming both simultaneously you can significantly reduce your taxable income. However, there are certain conditions you must first meet.
Firstly, you must be a salaried employee who receives HRA as a part of your compensation. You also must reside in a rental home in the same city as your place of employment. Lastly, you are required to have obtained a Home Loan for a property. If you meet these requirements, then here’s a detailed explanation of the procedure.
Understanding HRA
House Rent Allowance (HRA) is a component of an employee's salary provided by employers to help cover housing expenses. The HRA amount is typically a percentage of the basic salary and can vary based on the overall salary package. Under Section 80C of the Income Tax Act, you are eligible for HRA exemptions in income tax. The deductible amount is the lowest of the following three values:
- Actual HRA received.
- 50% of salary if living in a metro city, or 40% if living in a non-metro city.
- Actual rent paid minus 10% of the total annual salary.
Home Loan Interest Deduction
Under Section 24(b) of the Income Tax Act, you can claim a deduction for the interest paid on your home loan, whether the property is self-occupied or rented:
- For a self-occupied property, you can get a deduction of up to ₹2 Lakh per year.
- For a rented property, there's no upper limit on the interest deduction. However, the overall loss from the house property that can be offset against other income is capped at ₹2 Lakh per year.
Claiming HRA and Home Loan Interest Deduction Together
Here are possible scenarios where you can claim the benefits of both:
Living in One City and Working in Another: If you own a residence in one city and work in another, and you pay rent in the city where you work, you are eligible for an HRA exemption for the rent paid in the city where you work and Section 24 Home Loan interest deduction for your primary residence.
Self-Occupied Property Under Construction: If you are renting while your self-occupied property is being built, you can deduct the interest from your Home Loan and claim HRA for the rented space when the building is finished.
Let-Out Property: If you live in a rental home and have rented out your own property, you can claim HRA exemption in income tax on rent payments. Additionally, under Section 24(b), you can deduct the full Home Loan interest for the rented-out property.
When Can You Not Claim House Rent Deduction in Income Tax Section?
Here are some conditions under which you won’t be eligible for an HRA and Home Loan deductions together:
In situations where you have taken a Home Loan and reside in the same property for which you are paying interest, while also receiving HRA as part of your salary, you can deduct the interest paid on the loan from your taxable income. However, you can't claim an HRA exemption because you're not paying rent.
When you own a house in the city but reside in a rented accommodation in the same city, you cannot claim HRA exemption unless you can justify that your employment necessitates living away from your owned property.
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*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
