HRA refers to the House Rent Allowance. It is a component of your salary that you receive in case you rent a house for your residence. For HRA, you receive tax exemptions under Section 10(13A) of income tax. Another important part of an individual's income tax deductions may be the home loan interest in case she owns a house. Under Section 80C, one can claim income tax deductions on the home loan interest paid and the principal loan amount.
Now the question arises, can we claim HRA and home loan? Well, it is probably one of the most frequently asked questions. The answer is yes, you can claim but under conditions specified by the Income Tax. Now, you may be wondering how I can claim HRA and interest on a housing loan? Let's find out the answer.
Most people begin their life or work journey with a rented house. For this rented house, they receive the HRA as specified by the rules. However, in the due course, they may also purchase a home with a home loan. As mentioned by income tax, home loan interest and the principal amount is also eligible for a tax deduction. So, can we show home loan and HRA together? As aforementioned, an individual is eligible to raise tax deductions for both HRA and home loan.
Let's know the conditions where one can do so:
When HRA and home loan is claimed for houses in different cities: HRA is provided to the employee working in the firm. However, for various reasons the employee may purchase a house in another city. In such a situation, if the employee takes a home loan to purchase a home in another city, he/she is eligible to raise tax deduction claims for HRA and on the housing loan interest including the home loan principal amounts.
If it is an under-construction house: Suppose Hritu bought a home in Nagpur and she has her job in Nagpur itself. However, because her house is still under construction, she has to live in a leased house. So, in such a situation, can HRA and home loan be claimed? The answer is yes. Until the house is constructed and Hritu is ready to move to her house, she can get a tax deduction on both the principal amount and interest paid on the home loan and the HRA.
If the employee is not able to move to their house: Rajvi lives in Raipur but the distance between her office and home is 50 km. So, she rented a house near her office. Now said that, can HRA and home loan be claimed? Rajvi asks 'can we claim HRA and home loan in the same city?' Yes. If due to distance or some other reason, one has to rent a house, employees can raise such a claim. However, the distance must be more than 35 kms.
When the employee's house is rented: The employee may wish to rent their house for any reason and live in a leased home. In such a situation as well, both HRA and home loan can be claimed under tax deductions. However, here one cannot claim any tax deduction on the principal amount of a home loan.
HRA vs house loan is a matter of concern when it comes to tax deductions. So, make sure you gather enough knowledge so that you don't make a loss. If you fall under any of the three mentioned conditions, you can raise a tax deduction claim for HRA and home loan.
Yes, you can. However, in such a situation, the distance between your house and the rented house must be more than 35 km.
The cap on the maximum limit of HRA is put on 50% of your basic salary. For employees working in metro cities, the HRA is 50% of their basic salary; for those residing in a non-metro city, it is 40% of their basic salary.