Three ways to claim both HRA and housing loan tax exemption

Filing for income tax involves strategic investments to bring down the overall tax liabilities. Some people may use HRA to show rent as a deduction, while some may show the income and principal as separate deductions under housing loan. But did you know that it is possible to claim both and have a higher amount of deductions while filing your tax returns?

Interested to know how? Let’s look at three key scenarios where you can claim exemptions for both – HRA as well as housing loan repayment. But before that let’s check the deductions applicable for both components.

What are HRA and housing loan exemptions?

House Rent Allowance of HRA can be claimed as per sec 10(13A) of Income Tax Act, 1961. The lowest of the 3 will be considered for exemption

a – Actual HRA from company

b – 50% of HRA (if metro resident) or 40% (if non-metro resident)

c – Actual rent paid after deducting 10% of salary (basic + DA + sales- based commissions)

Exemptions for home loan repayments can be claimed as below

a – Principal will be exempted as per sec 80(C) upto Rs. 1.5 lakh.

b – Interest will be exempted as per sec 24b upto Rs. 2 lakhs.

Can we claim both?

Yes, you can but under very specific circumstances as below

1 – House on loan is under construction

If you are living in a separate house on rent for the duration that the house is undergoing construction, you can claim rent as well as housing loan exemptions

Condition – Only interest component will be applicable. The principal is not a part of the exemption.

2 – House on a loan and rented house are in different cities

It may happen that you live in a house that is in a separate city from your own house. In this case, you can claim both HRA and home loan exemptions.

Condition – You need to have a valid reason why the two houses are in different cities (for work or if the home is too far away from the workplace). This may become important if you are asked by your employer or the tax inspector.

3 – Own home is rented out

If for some reason you have put up your owned house on rent, and you live elsewhere on rent, then you can claim for both – HRA and home loan exemptions. Here too, you need a valid reason why you cannot live in the owned house on which the home loan is applicable. It can be that it is too small or doesn’t have proper amenities for your children’s education.

Condition – Along with a valid reason, you will also need to disclose the rental income you receive by putting out your own home on rent.

It is clear that the reason for claiming both components of allowable deduction should be solid and logical (to prevent misuse). If you have one of these reasons applicable to your own lifestyle, then make sure that you take advantage of both the exemptions when filing income tax returns.