Summary: Did you know that along with home loan tax benefits, you can also claim HRA tax benefits while filing your taxes? Yes, there are some conditions and limitations to it, which we will talk about in this article. So, read along!
The government has introduced various tax incentives, such as home loan tax benefits and HRA tax benefits, to help with financial planning and make housing more accessible. The amount of exemption available and the conditions to avail depend on various factors such as your annual income, loan amount, and location.
In this article, we talk about home loan tax benefits and HRA tax benefits in detail, including the conditions required to avail of these deductions and if you are eligible to claim both of them. Read on!
Home loan tax benefits
If you’re planning to buy a new house or renovate an old one, it’s important to know that you can claim income tax benefits on home loans. Here is a brief overview –
| Income Tax Act | Maximum deductible amount |
| Section 24(b) | Rs 2 lakhs yearly |
| Section 80C | Rs 1.5 lakhs yearly |
| Section 80EE | Rs 50,000 yearly |
What does it mean?
Under section 80C of the Income Tax Act, you can get a yearly tax deduction of up to Rs 1.5 lakh on the principal amount of the loan.
But, if you sell the property within five years of obtaining possession, you must repay this deduction.
Whereas, according to Section 24(b) of the Income Tax Act, you can enjoy a maximum income tax rebate on home loans of Rs 2 lakhs on the interest paid in the previous year. Although, this limit can be reduced to Rs 30,000 in certain situations.
Furthermore, Section 80EE allows for an additional deduction of up to Rs 50,000 on home loan interest, taken before 1 April 2017, for first-time homebuyers.
You cannot claim a deduction under different sections of the Income Tax Act. For example, if you paid interest of Rs 2 lakhs in a year, you can claim a deduction under Section 24 or Section 80EE, but not both.
Conditions
Here are some conditions that you need to meet before claiming an income tax benefit on a home loan –
- You need to be the owner of the property
- You need to be a co-borrower of the loan
- The construction of the property must be complete
HRA tax benefits
Under Section 10(13A) of the Income Tax Act, house rent allowance (HRA) — part of your salary that you get to cover living accommodations — is exempt from tax.
You can claim an HRA tax benefit on the least amount from the following –
- HRA received
- 50% of the basic salary for individuals residing in Delhi, Mumbai, Chennai, or Kolkata
- 40% of the basic salary for individuals residing in other cities
- Actual rent (minus) 10% of the basic salary
Conditions
Here are some conditions that you need to meet before claiming an HRA tax deduction –
- You must file the tax under the old regime
- You need to be living in a rented accommodation
- You should be a salaried employee
- You must not be earning rent from a residential property
Can tax benefits be claimed on both home loans and HRA?
Yes, income tax benefits on home loans and HRA are not interconnected, so you can claim both. These are separate provisions in the Income Tax Act, and depending on your specific situation, you may be eligible to claim tax benefits for one or both of them.
Here are a few scenarios where you can claim both home loan and HRA tax benefits –
- You own a house in one city but are living in rented accommodation in another
- You own a house but are living in rented accommodation in the same city but at a distance of at least 35 km
- You rent out your property and are living in rented accommodation
- Your house is under construction, because of which you are living in rented accommodation
To help you understand better, here’s the calculation of both home loan tax benefits and HRA tax benefits –
For example – Rahul lives in Pune, earns Rs 50,000 monthly, and pays a rent of Rs 12,000 monthly. He also receives an HRA of Rs 18,000 per month from his employer. Additionally, he has taken a home loan of Rs 10 lakhs to purchase a house in Mumbai, with a monthly interest of Rs 25,000.
Calculation of HRA tax benefits –
| Particulars | Amount |
| HRA received | Rs 18,000 |
| 40% of Basic (lives in Pune) | Rs 20,000 |
| Rent paid – 10% of Basic | Rs 7,000 (Rs 12,000 – Rs 5,000) |
| Minimum HRA exempt | Rs 7,000 |
| Remaining taxable HRA | Rs 11,000 (Rs 18,000 – Rs 7,000) |
Calculation of home loan tax benefits –
| Particulars | Amount |
| Home Loan acquired | Rs 10 lakhs |
| Less – Tax deduction on interest | Rs 2,00,000 (maximum deduction under section 24(b)) |
| Remaining taxable home loan | Rs 8 lakhs |
Summing up
If you are a salaried employee who receives an HRA and has also taken a home loan, you can benefit from both the HRA exemption and deductions on the home loan repayment.
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The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.