In Understanding HRA, we explained the basics of House Rent Allowance.
In Repaying home loan? and Paying interest on home loan?, we spoke about the tax benefits on a home loan. A person repaying a home loan gets tax benefits on principal repayment (Section 80C) and benefits on interest payment (Section 24).
Over here, we address all three issues.
If you are servicing a home loan, do you get the HRA benefit or not? That depends on the situation you are in. Let's look at the various scenarios.
In the examples below, we are assuming you own only one home.
Home in another city
Your house is in one city but you reside in another. Let's say you have taken a home loan to buy a house in Goa. But you work and, hence, reside in Delhi.
What you will be entitled to
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
- HRA benefit
Living in your home
You have taken a home loan and are now living in the home you have bought with the help of the loan. So, the home loan is for a home in the same city. For instance, you have taken a home loan to buy a home in Delhi and you reside in Delhi and live in this home.
What you will be entitled to
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
You will not be entitled to HRA, since you are not residing in a rented accommodation.
Home not ready
Let's say you are residing on one city and have taken a loan to buy a home in the same city. But the home is not ready, forcing you to rent a place. For instance, you have taken the loan to buy a place in Delhi but you are staying in a rented accommodation in Delhi itself because your home is not ready for occupation.
What you will be entitled to
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
- HRA benefit
You can claim tax benefits on the housing loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops.
Home not suitable
You took a home loan and have got the home. But you are not staying in it for genuine reasons.
It could be that the home is at a considerable distance from your work place. Or, it could be that the home is rather small and your parents are living in it so you have to stay elsewhere.
Though your rental accommodation and home are in the same city, you can still get all the benefits.
What you will be entitled to
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
- HRA benefit
However, it is necessary you have some of your belongings at your home (the one you own) and you stay there on and off on weekends and holidays.
Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns.
House on rent
You took a home loan, got possession of the house and have rented it out for a neat amount. You continue to stay in a rented accommodation.
What you will be entitled to
- Tax benefit on principal repayment under Section 80C
- Tax benefit on interest payment under Section 24
- HRA benefit
However, please note the rent you receive would be considered as your taxable income.
Apart from the above tax benefits, you can also claim a deduction on property taxes and repairs and maintenance on the home you have rented out. Deduction of repairs and maintenance is claimed @ 30% of (Rent received Property taxes). This is a flat deduction and you don't need to submit any bills for the same. The ceiling of Rs 150,000 on interest deduction is not applicable.
In short, HRA and home loan benefits are independent. If you satisfies the respective conditions, you can claim both.
ADROIT is a Pune-based firm that specialises in providing domestic and international tax services to salaried individuals and professionals. They can be reached at tax@adroitservices.in.
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