Maximizing Tax Savings: Claiming Home Loan Tax Exemptions and HRA Together

Home Loan and HRA Tax Benefit

In the complex world of tax planning, understanding how to strategically claim tax exemptions can lead to significant financial benefits. One area of interest for many taxpayers is the ability to claim deductions on both a home loan and a House Rent Allowance (HRA) simultaneously. This blog will guide you through the nuances of availing these benefits together, helping you navigate the tax-saving landscape more effectively.

Table of Contents

Understanding the Basics - Home Loan and HRA 

Before diving into the specifics, it’s important to understand what these terms mean:

  • Income Tax Exemption on Home Loan: These refer to the tax deductions you can claim on the principal (up to INR 1.5 lakhs per annum) and interest payments (up to INR 2 lakhs per annum) of a home loan under Sections 80C and 24b of the Income Tax Act, respectively.
  • House Rent Allowance (HRA): This is an allowance given by employers to employees to cover housing rent expenses. Tax deductions on HRA are claimed under Section 10(13A) of the Income Tax Act.

Suggested read: Home Loan Tax Benefits

Eligibility for Claiming Both Benefits

To claim both HRA and home loan deductions, you must satisfy certain conditions:

  • Ownership and Occupation: You can claim home loan tax benefits on a property you own and are paying a loan for. If you reside in a different city for employment reasons and rent a house there while your purchased property is in another city, you can claim both benefits.
  • Rented Property to Parents: If you own a house but live in another house that you rent from your parents, you can pay rent to your parents and claim HRA. However, your parents must include this rental income in their tax returns. Simultaneously, you can claim tax benefits on your home loan.
  • Property Under Construction: If your purchased property is under construction and you live in a rented house, you can claim HRA. However,  home loan interest exemption in income tax can only be claimed after the construction is completed.

How to Claim These Benefits

Claiming HRA: To claim HRA, you need to submit rent receipts or a rental agreement to your employer. Ensure that you provide PAN details of your landlord if the rent exceeds a certain threshold, currently set at INR 1,00,000 per annum.

Claiming Home Loan Deductions: For claiming deductions on the home loan:

  • For the principal repayment under Section 80C, submit proof of repayment to your employer or claim it while filing your income tax returns.
  • For the interest payment under Section 24, you don’t need to submit any proof to the employer but must claim it directly in your income tax returns.

Suggested read: Pre-EMI Tax Benefits on Housing Loans

Documentation Required

  • For HRA: Rent receipts, rent agreement, and PAN of the landlord if annual rent exceeds INR 1,00,000.
  • For Home Loan: Home loan statement from the bank or financial institution, specifying the principal and interest components of the EMIs paid.

Common Misconceptions 

  • Claiming HRA and Home Loan Simultaneously: It is a common misconception that one cannot claim HRA if servicing a home loan. The truth is that both can be claimed, provided the conditions mentioned above are met.
  • No Upper Limit for Claiming Both Benefits: There is no upper limit to the number of times these benefits can be claimed together, as long as the eligibility criteria are met each financial year.

Claiming both HRA and home loan tax exemptions can substantially reduce your taxable income, thereby increasing your take-home salary. However, it's essential to understand the eligibility criteria and ensure proper documentation to make the most of these tax benefits. Consulting with a tax advisor can also provide personalized advice based on your financial situation, helping you navigate the complexities of tax planning effectively.

FAQs About Claiming Home Loan Tax Exemptions and HRA Together

Yes, you can claim both HRA and housing loan exemptions if you are living in a rented house and have a home loan on another property.

Yes, you can claim deduction under Section 80GG for rent paid if you do not receive HRA and also claim deduction on interest for a home loan under Section 24.

  • The employee must receive HRA as part of the salary package.
  • The employee must have rented a residence.
  • The employee must pay rent for the housing claimed.

Yes, you can claim HRA tax exemption for the rent paid and also claim a deduction on home loan interest, provided you meet the conditions for both.

Generally, a credit score of 750 or above is considered good for securing a home loan at favorable terms.

Yes, if annual rent exceeds INR 1,00,000, it is mandatory to provide the PAN details of your landlord to claim HRA exemption.

Published on 14th February 2024