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 affect the other.
Deduction of Home loan:
Tax benefits can be availed for Home loan under Section 80C and Section 24 of Income Tax Act. A person having a home loan is entitled to benefits on both repayments of principal under section 80C and of the interest under section 24.
Deduction of HRA:
The deduction of HRA is covered under Section 10 (13A) of the Income Tax Act. It states that if a tax payer has to pay rent for a house which is not owned by him and till a taxpayer fulfills this condition, he can claim a deduction for his HRA.
No section states deduction cannot be claimed when the tax payer owns another property:
Any section of the Income Tax Act does not categorically state that deduction cannot be availed where the tax payer owns any other property.
Limit of deduction claimed:
One can claim a deduction up to Rs 1.5 lakh for the interest paid by him for his 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 as a general rule a self occupied one.
Meaning of the term self occupied:
According to Section 23(2) of the Income Tax Act, the expression “self occupied property” includes property not occupied by its owner for his business or job, carried elsewhere in a property not owned by him. This means that a self occupied property should be for the purpose of 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 received;
ii) The actual rent paid less 10% of salary including the basic salary along with the dearness allowance;
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 expenses of a rented house. HRA allowance is allowed to someone staying in a rented property and the rent should be more than 10% of his basic salary.