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Can HRA BE Claimed Together with Interest on Home Loan

By Finserv MARKETS - Jul 29,2019
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Can HRA Be Claimed Together with Interest on Home Loan

What is HRA?

House Rent Allowance (HRA) is a component of the salary that an employee receives from his employer. Under Section 10(13A), an employee is eligible for HRA deduction from his income tax liability for the year if he stays in a rented accommodation. The amount of deduction depends upon the provisions of Section 10(13A) of the Income Tax Act, 1961. [1]

Note that HRA is only available to a salaried worker and the employee must have HRA as a component in his salary. This deduction is not available to a self-employed person.

HRA Deductions u/s 10 (13A)

Provisions & Limits

1 Actual HRA received from the employer
2 Excess of rent paid over 10% of basic salary
Example: If your basic salary is Rs.20,000 and you pay rent of Rs.5,000, you are only eligible for a deduction of Rs.3,000. (10% of 20,000= 2,000 | 5,000 – 2,000= 3,000)
3 Maximum exemption is 50% of the basic salary in 4 metro cities and 40% in rest of India

Documents required

You have to submit rent receipts to your employers to avail HRA exemptions. If you are paying an annual rent of more than Rs.1 lakh, it is mandatory to submit a copy of the Pan Card of the homeowner or land lord.

What are the deductions available for interest on home loan?

Under Section 24(b) of the Income Tax Act, 1961, a taxpayer is eligible for deductions up to Rs. 2 lakh on home loan interest, provided he is residing in the house for which he took the loan.

Home Loan Interest Deductions u/s 24(b)

Provisions & Limits

1 Maximum deductions of Rs.2 lakh on self-occupied house property
2 No upper limit for claiming interest on let out property. Maximum loss of Rs.2 lakh can be claimed from the year construction of the house is completed
3 Pre-construction interest is allowed in 5 EMIs, from the year the house is purchased or construction is completed

So, can you claim both HRA and interest on home loan for deductions?

Claiming both HRA and home loan interest deduction together sounds somewhat contradictory because you are technically saying that you own a house yet you pay rent. However, it may not contradict income tax laws in certain circumstances. Yes, you can claim deductions for both house rent and house loan interests if you are a salaried individual and meet certain conditions, such as:

  • Rented accommodation and house property are located in different cities. For example, you may be working in Gurgaon and stay in rent but have taken a Bajaj Finserv home loan on Finserv MARKETS for a house in Lucknow. [1]

  • The purchased property is under construction and you are living in a rented accommodation until it’s completed. In such a case, you can also claim interest deduction but only after getting possession of the house. You can do so in five equal installments over the years.

  • The house property on home loan is rented out and you are living in a rented accommodation.

If you fulfill the above conditions, you are among the lucky taxpayers who are eligible for both HRA and home loan interest deductions.

Section 80EE

Under Section 80EE, first-time home buyers can also avail deductions up to Rs.50,000 a year on interest paid towards home loan. These deductions are allowed even after you have claimed deductions under Section 24(b) and Section 10(13A).

Conditions for claiming deductions under Section 80EE

  • The taxpayer must have never purchased a house before; this must be his first house

  • The value of the house should not be more than Rs.50 lakh

  • Loan value shouldn’t be more than Rs.35 lakh

  • Only interest portion of the home loan is deductible under Section 80EE, not the principal

  • The home loan must be taken from a housing finance company or a financial institution

  • The deduction is not allowed for commercial properties

If you are planning to buy a home to take advantage of tax deductions – whether it’s your first home or a second one – rely on Finserv MARKETS for an attractive Bajaj Finserv home loan to fulfil your dream. Become a proud home owner with a home loan on Finserv MARKETS – with tenure up to 25 years, competitive interest rates and zero prepayment charges. If you are a first-time applicant, you can get additional benefits of reduced EMIs and interest rates up to 6.93% under Pradhan Mantri Awas Yojana (PMAY).

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522