Home / Money / Q&a /  Know when you can claim both home loan and HRA deduction

I stay in a rented house in Delhi because I want to avoid a long commute to work. I have also bought a house in Greater Noida where my family lives. I am paying interest on the home loan taken for this property. Can I claim tax deduction for house rent allowance (HRA) and home loan interest simultaneously?

- Rohan Shah (Delhi)

Income Tax Act allows a deduction for HRA as well as interest paid on the home loan. However, both deductions can be claimed in the same financial year in certain situations.

HRA is an allowance paid by employers to employees to meet the cost of a rented house. Income Tax Act allows exemption in respect of HRA only if the employee is staying in a rented house. To claim tax exemption, an employee must be paying rent for the house that he actually occupies. In case an employee lives in his own house or does not pay any rent, he cannot claim an exemption for HRA.

Income Tax Act allows a deduction for interest on home loans paid by an individual taxpayer. This deduction of interest is available for every housing loan taken for purchase, construction, renovation or reconstruction of a residential house. The amount of tax deduction depends upon the purpose for which the house has been occupied – i.e. whether the house is occupied for one's personal use or for renting out to others.

In certain situations, a taxpayer may stay in a rented house and may also be paying interest on a home loan. This situation may arise where a taxpayer works in a city that is different from his home town or he pays interest on a home loan taken to buy or construct a house for the parents, spouse or children, etc.

One can claim HRA exemption as well as the deduction for interest on a home loan if one owns a house but lives in a rented house. Both these tax deductions are allowed only if the house one owns and the house one lives in are at different locations and there is a genuine reason for not living in one's own house.

Therefore, you can claim a deduction for HRA as well as interest since your workplace is in a different city, or that your office is too far from your house. But it should be noted that sufficient explanations need to be provided to the employer or the Income Tax authority in case there is a scrutiny of the details provided.

- Tarun Kumar, is a Delhi-based chartered accountant. Queries and views at mintmoney@livemint.com

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