How to claim HRA and home loan benefits together?

How to claim HRA and home loan benefits together?

It is the most asked question by any salaried person and believe me it is very important to know the conditions that when you can claim tax benefits only of HRA or of home loan or both. So below is a comprehensive article covering all aspects of taxation on home loan with HRA.

First of all, the answer to the above question is simple YES.

Yes, you can enjoy the tax benefits of home loan with HRA, as there is no relationship between claiming HRA tax exemption and claiming interest on home loan as both have independent provisions in Income Tax Act.

Claim tax benefits on both HRA and home loan interest payment

Let us analyze various possible situations an individual can find himself in and understand what he can do without going against any provision mentioned in Income Tax Act regarding HRA and Home Loan:

1: You live in your own house
Since you are residing in your own house there will be no HRA in this case but you are eligible to claim tax benefits on both the principal repayment of loan u/s 80C as well as interest on home loan u/s 24(b).

2: You own a house in another city
In case your own house and the house you are residing in are in different cities then you will be entitled to HRA exemption and tax benefits on both, the principal and interest repaid on the home loan.

3: Your house cannot be occupied at this point (e.g. under construction)
In such a case, you are eligible to claim HRA. Coming on to tax benefits on the home loan, you are eligible to claim tax benefits only for the principal repayment till the completion of your house. Once your house gets completed, you become eligible to claim tax benefits on the total interest paid up to the date of completion in five equal installments in five years beginning from the year of completion.

4: You have a house which is ready for occupation but you cannot reside in it
Say your house is very far from your working place, in such cases, the Income tax act permits the individual to claim HRA and home loan benefits which includes both principal and interest repaid on the home loan.
Also, remember that if your house remains vacant, then you will still need to pay tax on a notional rent income.

5: You have rented your own house and currently residing in a rented house
You own a house but you are still residing in rented house due to some reason. The Income Tax Act permits you to claim both HRA and home loan benefits.

However, in such a case, since you are the recipient of rent because you have let out your own house, that income is taxable at your hands under the head Income from House Property.

6 You have rented your house and residing with your parents
If you are staying on rent in a place belonging to a relative, say parents or siblings and you own another house for which EMIs are being paid. You can still get both tax rebates. Just make sure that your parents or siblings are filing I-T returns.

7. You live in a house owned by your spouse and paying rent to him/her
This case is a sham transaction in the eyes of Income-Tax Act because there is no commercial interest between spouses unless they are living apart. Although one can contend that Income Tax laws do not prohibit claiming HRA benefit in this case. But in most of the cases no tax benefits of HRA can be claimed in this case.