Can you claim HRA and home loan tax perks together? Here’s how taxpayers save Rs 1 lakh or more

Salaried taxpayers often face confusion about whether they can simultaneously claim House Rent Allowance (HRA) exemption and home loan deductions. This situation is commonly encountered, as seen in the case of Soham, who experienced denial in his claims, leading to an additional TDS deduction of Rs 1,03,745. According to the tax solutions platform TaxBuddy, it is possible to claim both benefits if certain conditions are satisfied.

HRA exemption, under Section 10(13A) of the Income Tax Act, allows employees receiving HRA and paying rent to claim an exemption. The exempt amount is determined by the lowest among three figures: actual HRA received, 50% of basic salary for those living in metro cities or 40% for non-metros, and the amount by which rent paid exceeds 10% of the basic salary. This ensures that taxpayers can maximize their savings based on their living conditions.

Deductions on home loan interest

A taxpayer can also claim deductions on home loan interest under Section 24(b). For self-occupied properties, this deduction is capped at ₹2 lakh annually, while for let-out properties, the entire interest is deductible, although the overall loss from house property that can be set off is limited to ₹2 lakh per year. Excess amounts may be carried forward for eight years.

Additionally, under Section 80C of the Income Tax Act, taxpayers can claim up to Rs 1.5 lakh for the principal repayment of a home loan. This limit also includes other investment instruments like ELSS, PPF, and life insurance premiums. For example, if you repay ₹1 lakh in principal and invest Rs 50,000 in ELSS in a year, you can claim the full Rs 1.5 lakh deduction under Section 80C.

HRA and home loan benefits

Both HRA and home loan benefits can be claimed if the rented property and the property under the home loan are different residences. As illustrated by Anita’s example, who lives in Mumbai and pays rent there while having a home loan for her property in Pune, this dual claiming is valid and legal. This strategy can significantly enhance one’s financial planning.

TaxBuddy advises that interest deductions are applicable only after property possession. For under-construction properties, pre-construction interest can be claimed over five equal instalments starting from the completion year of construction. It is also possible to pay rent to close relatives, such as parents or a spouse, provided formal agreements and proof of bank transactions are in place.

Accurate filing and comprehensive papers

Taxpayers are reminded that accurate filing and comprehensive documentation are essential to ensure these benefits without discrepancies. Proper understanding and adherence to the criteria not only optimize tax savings but also prevent potential conflicts with tax authorities. This dual benefit can be a practical advantage for many, yet it requires careful planning and adherence to regulations.

Engaging with tax professionals or platforms like TaxBuddy can provide clarity and guidance, ensuring that taxpayers can effectively navigate these claims. This proactive approach can help maximize tax benefits while maintaining compliance with the law.