HRA helps you lower your income tax liability (Photo: Mint)
HRA helps you lower your income tax liability (Photo: Mint)

Income tax deduction on HRA and home loan: Can you claim both?

  • Tax experts say that there should be a good reason for not living in the house you own
  • From this year, the government allowed treatment of two properties as self-occupied in terms of income tax implications

If you get HRA as part of your salary income and pay rent for accommodation you can claim both for lowering your income tax liability. If you are repaying a home loan for a residential property, income tax laws allow you to tax deduction of up to 2 lakh on the interest component. In the July Budget, Finance Minister Nirmala Sitharaman had increased this limit by 1.5 lakh to 3.5 lakh per annum for houses valued up to 45 lakh as part of the government’s plan to boost affordable housing. This additional deduction will be available on new home loans taken up to March 31, 2020.

“Legally speaking, there is no bar for claiming the both but ordinarily, it will be difficult to justify in all cases. Hence, the allowability will depend on case-to-case basis," says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates.

He says that there should be a good reason for not living where you own the house, if income-tax authorities scrutinize the details provided by you.

Some of the common cases, he says, where tax authorities allow claim of both HRA and deduction on home loan interest include 1) where a person may be working in a different city and paying rent there but the family stays in a different city in a house for which the person may be paying interest as well 2) where a person owns the house smaller in size but may be staying in another house on rent which is bigger and fit for his requirement 3) where a person may have bought the house but may not be able to shift immediately due to vicinity of the existing school of the children where he is staying on rent, etc.

“There should be a justified reason for not staying in the own house and staying in a rented one," he adds.

In cases, where you have rented out the house on which you have a home loan, and you live in another house on rent, disclose the rental income that you earn from the let-out property. In this case too, you can claim both HRA exemption and the home loan deduction.

Also, from this year, the government allowed treatment of two properties as self-occupied in terms of income tax implications if they are used for one’s own residential purposes. Earlier, only one property was treated as a self-occupied property and the remaining were assumed to be rent out for tax purposes.

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