Homeowners, who are paying back their home loan and getting HRA as part of their salary, can avail both the house property-related tax benefits to lower their taxable income.
There can be cases where you work in one city and live on rent, your family resides in another city, and you buy a home where your family is.
A homeowner can claim:
- HRA exemption towards rent payment
- Deduction on home loan interest as per Section 24
- Principal Repayment under Section 80C
Read more about home loan-related tax benefits on our guide
Here’s an example:Aryan lives in Gurgaon and pays a rent of Rs 10,000 per month; he gets an HRA of Rs 15,000. His basic salary is Rs 40,000. Aryan has taken a loan to buy a house in Bangalore where his parents currently live. The interest he pays on the loan for his house is Rs 20,000 per month.
Aryan can claim HRA as follows –
The amount of tax exemption from HRA will be a minimum of these three:
- HRA received = Rs. 15,000
- 40% of Basic since he lives in Gurgaon = Rs. 16,000
- Rent paid – 10% of Basic = Rs.10,000 – Rs. 4,000 = Rs. 6,000
Therefore HRA exempt = Rs.6,000. Remaining HRA of Rs 15,000 – Rs 6,000 = Rs.9,000 will form part of his taxable income under Salaries on account of HRA.
Use the HRA calculator to determine HRA exempt from tax
The income from house property and claiming interest on home loan deduction will be allowed as follows:
Gross Annual Value of the property is Nil(because his parents live in the house property)
Less: Deduction on Interest on home loan = Rs 2,00,000 (limited to Rs.2,00,000 for self-occupied house)
Net Loss under the head ‘Income from House Property’ = (-) Rs 2,00,000 which will be added to his taxable income.
Learn more about loss on house property due to home loan.
Frequently Asked Questions
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I have my house property in Chennai which is let out and I live in a different house in Chennai and pay rent for that. Can I Claim HRA exemption ?
No, you cannot claim HRA exemption if you are living in a different house in the same city and have a Self Occupied House in the same city.
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