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

Yes, you can claim both HRA exemption and home loan deductions if conditions are met. However, ensure that you are not claiming home loan on self occupied property. Also, ensure that both claims are genuine, backed with valid rent receipts, loan documents, and proof of occupancy.

Key Highlights

• You can claim both HRA and home loan interest if both the house properties are located in the same city.
• You cannot claim HRA and home loan interest on the same property. 
• You can claim interest on let out house property.

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. 
• HRA is not fully taxable, and a certain portion can be claimed as an exemption. The amount of HRA exemption will be calculated as the least of the following:

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.

• Interest payment on home loan qualifies for deduction under section 24(b) of the Income Tax Act, 1961
• Principal 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.
• Deduction can be claimed irrespective of whether the assessee is the legal owner of the house property or not.

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

• To avail maximum deduction of Rs. 1.5 lakh against the principal repayment of the home loan, the taxpayer should not sell the property for 5 years. On sale, the 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 or deductions.

HRA and Home Loan Interest Deduction 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.

The amount of HRA exemption available to Aryan 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 Head of Salaries.

Final Word

The usual perception of exclusivity of HRA and home loan deduction is actually incorrect. Proper awareness of income tax provisions can help in saving taxes and increase disposable income.