Salaried homeowners who are paying home rent and a monthly EMI simultaneously can now avail property-related tax benefits. This will help lower their taxable income. In such scenarios, the homeowner can claim:
- HRA exemption towards rent
- Deduction on home loan interest
HRA Tax Exemption for Salaried People
House Rent Allowance (HRA) is one of the benefits an employer provides his employee. If the employee stays in a rented accommodation and HRA is a part of the salary structure, then the employee can claim full or partial HRA exemption under the Section 10 of Income Tax Act according to the Indian law. To avail the tax benefits of this, one must furnish the rent receipts. However, on failing to do so the HRA amount becomes taxable. If the employee resides in any of the metro cities in India then 50% of his/her salary is eligible for HRA tax exemption. For other cities in India, its 40% HRA can be calculated based on the following parameters:
- HRA component of the salary
- Location of the accommodation
Tax Benefits on Both Home Loan and Rented Residence
An employee living in a rented space can avail benefits of HRA tax exemptions on both home loan and rent paid. If the rented space and the property purchased are in the same city the employee cannot avail tax benefits on both, he has to prove that his owned property is far from job location and covering so much distance every day is inconvenient.
Documents required to avail Tax Benefit on HRA & Home Loans
Should the rent amount paid during the financial year, exceed Rs. 1 Lakh per annum then the PAN CARD details of the landlord need to be furnished
The rent receipts of each transaction and details included in the receipt should be:
- Name of the property owner
- Tenant’s name
- PAN card details of the land lord
- Address of the accommodation
- Duration of stay
- Revenue stamp
- Signature of landlord on the revenue stamp
- Photocopy of rent-agreement
Scenarios wherein individual can claim interest on home loan and HRA benefits
- If the individual has purchased a property but resides in a different house, he/ she would be eligible for both HRA benefits and interest deduction on the home loan. The only condition is that the rented and self-occupied houses should be in different cities
- The individual can claim HRA benefits on a property under construction. Once the construction of the purchased property is complete, individuals can claim home loan tax benefits on the interest payout.
- If the homebuyer has to relocate in another city and cannot reside in the purchased property, then he/she would be eligible to both HRA and home loan tax benefits
Interest on Home Loan Claim Rules
- The loan should be availed after 1st April 1999 for purchasing a property or construction of a house.
- Individuals can claim tax benefits for repairs or reconstruction work of an existing property.
- Processing and pre-payment fees shall be considered as interest payment.
- The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was availed.
- Individuals can claim tax exemption for loans availed from friends or family.
How to Calculate Tax Benefits on Home Loan?
- In case of home loans, both principal and the interest paid, are eligible for tax deduction.
- Tax rebates on home loans are offered under section 80C of the Income Tax Act. Home loan borrowers can avail a maximum discount of Rs.1,50,000 on the principal repayment through tax exemptions.
- Under section 24 of the Income Tax Act, the interest paid can be claimed up to a maximum deduction of Rs 2 lakhs.
- You can make use of an online tax benefit calculator to easily calculate your tax benefits on home loan. You just have to provide basic home loan details such loan amount, rate of interest, existing tax deductions, gross annual salary, etc to check the tax benefits you can avail.
Before you apply for a home loan, it is important that you check home loan eligibility by using an online home loan eligibility calculator. This will reduce the chances of rejection of your home loan application.
Rules applicable on HRA claims
- HRA cannot exceed 50% of your basic salary
- If you’re living with parents and pay rent, providing necessary documents can make you eligible for HRA benefits
- Providing PAN Card of your landlord is compulsory if rent exceeds 1 Lakh per annum
- In case of an NRI landlord, 30% tax can be deducted from the rent and can be declared
HRA calculation can be done on annual basis if the accommodation and the rent remain unchanged. If either or both the factors change then the calculation should be done on a monthly basis.
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