House Rent Allowance (HRA) and home loans are two benefits that can give you significant tax savings. But at the same time, many of us are in doubt over the eligibility of both the benefits together.
Going by common logic, it is true that you cannot claim HRA as well as home loan benefits at the same time, but there are certain instances where you can claim both. But before learning about those instances, let us look at the benefits available on both the fronts.
Tax exemptions on HRA
Section 10(13A) of the Income Tax Act, 1961 allows an exemption on HRA. For calculating the exemption amount, the lowest of the following is considered for exemption:
- Actual HRA received from the employer
- 50% of salary if the employee lives in one of the four metro cities and 40% if the employee lives in other cities
- Actual rent paid minus 10% of salary
Tax exemption on home loans
Section 80C of the Income Tax Act allows for deduction against principal payment of the home loan up to a threshold of Rs 1,50,000. And interest paid against the home loan is allowed as a deduction under Sec 24B up to a limit of Rs 2,00,000.
Instances where you can avail benefits on both HRA and home loan
Owning a house but living in another house on rent
If you own a house for which you have availed a loan but are living in another house on rent, then you are eligible for both the benefits. The rented house could be in a different city or even in the same city provided you have a valid reason for not staying in your owned home like your workplace is situated far away from your owned residence, the schooling needs of your children or moving to a bigger house etc.
The taxman may question you, and you should be in possession of valid reasons and documents to prove the same.
Owning an under-construction property and living on rent
Let’s say that you have bought an under-construction property on loan but are residing elsewhere on rent. This is another possibility where you could be claiming both the benefits.
However, note that there will be no principal repayment benefit available and the interest paid during the under-construction period can be claimed only after the possession of the house in five instalments over five years.
Renting your own house and living on rent
Your house bought on loan might be rented out, and you live in another house which is also on rent. This is another possibility where you are eligible to claim benefits on both fronts. Here, you would have to show the rent received on your property while calculating your tax liability.