TWIN BENEFITS: You can provided you stay in a house other than the one you have purchased on loan and pay rent for it
Taxpayers are confused about whether tax benefits in respect of House Rent Allowance (HRA) and home loan be claimed simultaneously. Let us understand what the rules say in this regard.
Prerequisite for availing HRA benefit
HRA benefit is available to a salaried person only if certain conditions are satisfied. The first and most important condition is that the employer is paying you a certain sum as HRA. So unless you receive an amount in the nature of HRA from your employer you can not claim any benefit in respect of HRA.
The second condition is that the employee is paying rent for the accommodation occupied by him. The third condition is that the rent paid should not be for the accommodation owned by the employee. So, in cases of jointly-owned residential houses, you cannot pay rent to the other co-owner and claim the benefit of HRA.
As the benefit of HRA is available for the accommodation occupied by you only, you cannot claim this benefit in case you are paying rent for an accommodation occupied by your fully dependent parents separately.
As regards payment of rent for accommodations fully owned by you, you must be wondering how it is possible. Yes, this is possible in case you have leased out your property to your employer and the same property is let out to you by your employer to save taxes, as one can avail tax benefit in respect of let out property in the form of 30% standard deduction, as well as interest paid for money borrowed for such property. So whether the property is fully owned or partly owned by you, you will not be able to claim tax benefits in respect of HRA, if you pay rent for such property as discussed.
Conditions for claiming tax benefits for home loan
Income Tax laws allow you two benefits for home loan. The first benefit is available under Section 80 C for repayment of home loan. This benefit can only be availed for a residential property upto Rs 1.50 lakh in a year only if the home loan is availed from certain institutions. For interest paid on home loan the tax benefit under Section 24(b) in respect of self-occupied property is restricted to Rs 2 lakh in a year. For a let-out property though, you can claim the full benefit in respect of interest paid, but will only be able to set off loss under the head "Income from House Property" to the extent to Rs 2 lakh. The loss remaining unabsorbed shall have to be carried forward for eight years for set off against income from house property.
In order to avail tax benefits for home loan, whether under Section 80 C for principal repayment or interest under Section 24 (b), one important condition to be satisfied is that the house should be complete and the possession with you. So, in case of under-construction properties you will not be able to claim these benefits till the construction is completed and possession taken. Both benefits will be available if you are owner, as well as co-borrower of the loan. Benefits shall be available to the extent of your share in the home loan serviced by you and not on the basis of your share in the property.
Simultaneous claim of HRA as well as home loan
The legal provisions in respect of HRA are contained in Section 10(13A) of the Income Tax Act and rule 2A of Income Tax Rules. These provisions nowhere provide that tax benefit of HRA cannot be claimed if you own a house. Even for the house situated in the same city where you are working, bought with home loan and which is occupied by your parents, you can still claim HRA benefits, provided you stay in another house and actually pay rent for that house.
Under income tax laws you are allowed to own more than one house, but you can claim one house as self-occupied (which is proposed to be increased to two under the budget presented on 1st February, 2019) and the other house/s owned by you and also self-occupied are treated as let out. So logically the taxpayer can have one owned house as self-occupied and claim tax benefits of home loan for such house, while occupying another rented house provided you have not received any rent in respect of the house owned by you. As the latest Budget proposals provide for a taxpayer to have two self-occupied properties, the law also appreciates the possibility of one person occupying two houses at the same time.
However, in case you are claiming HRA benefit but not staying in that accommodation, the I-T department can take penal action against you for providing inaccurate information in your ITR. So this twin benefit can and should only be claimed in genuine cases and not for tax evasion.
BEST OF BOTH
- You can claim tax benefit on HRA if you are actually paying rent for the accommodation
- You can claim tax benefit on home loan if loan and property is in your name or joint name
The writer is tax and investment expert
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "home loan")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}