This article is reply to a query received from our reader Sourath. In short, the question is whether one can claim HRA exemption and home loans interest payment simultaneously. He has written me as follows : “I am a salaried employee and I earn nearly one lakh. I’m staying at Mumbai in a rented home. As an investment and to get rid from tax burden I had purchased a flat at my native place few months back through home loan. Now I am paying nearly twenty five thousand as home loan and twenty thousand rupees for rent. As per my information I can claim the home loan interest paid and leased home rent paid together for tax exemption (If both are not in same district). Please advice it is possible to claim both together”.
To be precise, House Rent Allowance (HRA) is covered u/s 10(13A) of the Income Tax Act while Interest on loan for acquisition or construction of house property is covered u/s 24(b) of the Income Tax Act. These two components are handled in two different income tax sections. I have received many questions from our readers related to the HRA exemption and the home loans tax exemption. This answer would serve as a answer to their questions.
1. If you stay in your own house
If you stay in your own house, you are eligible for only home loans tax exemption. You can not claim for the HRA exemption even if it is paid by your employer through your salary (Note that all the components are paid by default in the salary, if employee is eligible for exemption then only he can claim tax exemption). For the self occupied house, the maximum exemption for interest payment is Rs. 150000.
2. Own a house in another city
It is very common for the city working people to buy a house in their native location as an investment. If you stay in the rented house at your working location and paying for home loan EMI for the house purchased at your home town, then you are eligible to claim both HRA and home loans tax benefits. There are few important points to be considered for this scenario:
- You have to declare notional rental income for your house. Even if the house is not rented out, as per income tax act, if the house is not self occupied then tax payer has to show rental income for that house.
- There is no limit on the tax exemption under home loans interest payment. As you are aware, if it is self occupied house, then maximum exemption limit is Rs. 150000 for an individual.
3. House is under construction
If you have bought a house which is not yet started the construction, most likely you will start paying the EMI before you are moving to that house. Tax exemption for interest payment is not available for the under construction houses. If you have a house which is under construction and you are staying in the rental house, you can claim the HRA exemption. If you are not aware of pre-EMI, please read our article about what is pre-EMI?
- You are eligible to claim HRA exemption
- You are eligible to claim principal payment under section 80C
- You are not eligible to claim tax exemption on interest payment
4. Too far from your house
If you have bought a house in the city which is same as your present address. But, because of the genuine reasons if you are not able to stay in that house, you are eligible to claim HRA benefits. The reasons could be something like, your office is too far from your house where you can not travel everyday. If the genuine reasons are acceptable, income tax act have the provisions to allow the tax payer to utilize HRA option.
5. Rented your own house and staying in rented house
If you have rented your own house and staying in the rented house for some reasons, you can claim the following benefits.
- HRA exemption for the rented house
- Home loans interest payment ( there is no limit for the rented houses)
- Home loans principal payment under section 80C
- Showing rental income under income from other sources
6. Paying rent to parents
If you are staying with your parents and the house is on your parents name, then you are eligible to claim the HRA exemption. Only thing what you have to do is to show that you are paying rent to your parents. However, it is an income for your parents. They have to be taxpayer for claiming the HRA exemption. If you are staying with your spouse, one can not claim HRA since income tax not consider them as separate.
7. How HRA is calculated?
- HRA Exemption
- Tax benefit on principal repayment under Section 80C
- 4 Rules you must remember for HRA Exemption
Do you have any questions on this topic. I hope I have clarified the maximum possible scenarios for the HRA benefits. If you have further questions on this topic, please post it in the comments section. I am happy to answer all your questions. Also browse my blog and read the related articles.