Can You Claim Both HRA & Deduction on Home Loan Interest?

Yes, it’s possible to claim both HRA exemption and home loan deductions—provided certain conditions are met. For instance, you might be living in a rented home in one city for work while repaying a home loan on a property in another city. However, the claims must be genuine and supported by documentation.

In this article, we will explore the eligibility criteria and how you can make the most of these deductions.

What is HRA?

HRA or House Rent allowance under section 10(13A) is a percentage of an employee’s basic salary that is provided to cover the rent paid by taxpayers for residential accommodation. However, the amount of HRA paid to employees depends on the location of residence and the salary package. Also, HRA is allowed as a deduction while filing the Income Tax return (ITR) under section 80C. Let's see how much HRA is permissible for deduction under Section 80C. The value of HRA that is used as a deduction is the minimum of the three cases below:

• Actual HRA received
• 50% of the salary in metro cities like Delhi, Mumbai, Kolkata and Chennai and 40% of the salary in non-metro cities.
• Actual rent paid - 10% of the total annual salary.

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 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.

Conditions for Claiming HRA

• You must be a salaried individual receiving HRA as part of your salary.
• You must have incurred rent expenses and occupied residential accommodation.
• The benefit of HRA deduction is claimed only for the months rent is paid by a taxpayer. 

Home Loan Interest Deduction

According to the following sections of the Income Tax Act, 1961, taxpayers can deduct the principal payment and interest on a home loan.

• Principal payment on home loan qualifies for deduction under section 24(B) of the Income Tax Act, 1961
• Interest on home loan qualifies for deduction under section 80C of the Income Tax Act, 1961
• You must have availed a home loan for a property in your own name or jointly with your spouse.

However, there are certain conditions an assessee needs to comply with to avail the deductions above.

• An assessee has to be the legal owner of the property against which home loan has been availed.
• The maximum deduction of Rs. 1.5 lakh can be availed against the principal repayment of the home loan. However, the taxpayer should not sell the property for 5 years to receive this benefit. In case of a sale of house property, a deduction will be added back in the year of sale.
• A maximum deduction of Rs. 2 lakh can be claimed for interest payment on a home loan for a self-occupied property. However, the acquisition or construction of the property must be completed within five years after the financial year in which the home loan was borrowed.

Can we Claim HRA and Home Loan Interest together?

Yes, you can claim HRA tax exemption and home loan tax deduction as well if you meet certain conditions: 

If the house property is vacant or occupied by other family members,  it is still considered self-occupied property.

Note: Taxpayers paying taxes under the Old Tax Regime are eligible to claim the above exemptions/ deductions.

Read more about home loan-related tax benefits on our guide

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.