A very common question that comes in one’s mind is that if someone claims a deduction for House Rent Allowance (HRA) against his taxable income, will he be able to claim a deduction on the interest portion of the home loan?
The answer is yes, one can claim both the deductions under the provisions of the Income Tax Act till one does not influence the other.
Deduction of Home loan:
Tax benefits can be availed from Home loans under Section 80C and Section 24 of Income Tax Act.
Deduction of HRA:
The deduction of HRA is covered under Section 10 (13A) of the Income Tax Act. It states that the tax payer has to pay rent for a house which is not owned by him. Till a taxpayer fulfills this condition, he can claim a deduction for his HRA.
No section specifies that this deduction cannot be claimed when the tax payer owns any other property:
Any section of the Income Tax Act expressly does not specify that this deduction cannot be availed where the tax payer owns any other property.
Limit of deduction claimed:
One can claim a deduction up to maximum Rs 1.5 lakh for the interest paid by him towards home loan and can claim a deduction for the HRA also.
Whether the property on which home loan deduction is claimed should be self occupied?
The property on which the interest paid on the home loan is claimed as a deduction should be self occupied.
Meaning of the term self occupied:
According to Section 23(2) of the Income Tax Act, the expression “self occupied property” includes property which cannot be occupied by its owner for his business or employment, being carried elsewhere in a property not owned by him. This means that a self occupied property should be meant for occupation but it is not necessary that one has to physically reside there.
Restrictions on HRA deduction;
As per provisions of section 10(13A) of the Income Tax Act, the HRA deduction is restricted to a minimum of:
i) The actual HRA one gets;
ii) The actual rent paid less 10% of salary including the basic salary along with the dearness allowance;
iii) 50% of the salary in case the rented house is situated at Mumbai, Chennai, Kolkata and Delhi and 40% of the salary in case the rented house is situated elsewhere.
When is HRA paid to a person?
The HRA received is included as a part of the taxable income. HRA is a part of salary given by an employer to an employee for meeting the cost of renting a house. HRA allowance is allowed to someone staying in a rented property and the rent should be more than 10% of his basic salary.