Scenario 1,
Own house in one city but living on rent in another city
An increasing number of people now own a house in one city but live on rent in another. Can such a person claim income tax benefit for both HRA and home loan repayment? Sudhir Kaushik, Co-Founder and CEO, Taxspanner.com says, “Yes, if you are living on rent in your job city and have your house in another city, then HRA as well as income tax benefit on home loan interest can be availed. can be claimed.” ,
This is the easiest way to claim both HRA and home loan deduction together. First of all you have to follow the conditions related to HRA for which you should be an employed person and get HRA as part of salary. “As per section 10(13A) of the Income-tax Act, 1961 (‘Income-tax Act’), exemption from House Rent Allowance (HRA) is available when two conditions are satisfied, i.e., expenditure actually incurred towards payment of Rent for residential accommodation and such residential accommodation is occupied by the individual,” says Sonu Iyer, Tax Partner and People Advisory Services Leader, EY India.
Apart from this, you must also comply with the conditions related to the home loan deduction. As per section 23(2) of the Income Tax Act, as per section 24(b), interest on home loan can be claimed as deduction for self-occupied house property up to Rs.2 lakh per financial year. “Such deduction is available only if the house property is occupied by the individual or cannot in fact be occupied by the individual owner, by reason of the fact that he has to reside at any other place by reason of his employment, business or profession.” ‘Other space’ in a building that does not belong to him. In other words, it is vacant because of the person’s employment in some other place,” explains Iyer.
Although owned property may be vacant or occupied by other family members, you can still treat it as a self-occupied home. Iyer says, “The law allows a person to claim deduction for interest on housing loan for property which the person cannot occupy any other place by reason of his employment, business or profession.”
Therefore, if you are residing in a different city because of business or employment, you are eligible to claim both the deductions simultaneously. Iyer says, “In the above example, since the person cannot occupy his property due to his employment in a different city, he can claim both HRA (for rented property) and interest on home loan for self-occupied property. can claim deduction for You can also claim up to Rs 1.5 lakh principal repayment of home loan against self-occupied property.
Scenario 2: Owning a house but living on rent in the same city
Cities have grown, and for many people a one-way commute to work can take several hours. Many people prefer to move their accommodation closer to their workplace to reduce their commuting hours. So can you claim both the deductions while living in the same city?
“In special circumstances, if an assessee can prove that the property owned is far away from the workplace, and hence availed of rented accommodation, both HRA tax exemption and home loan benefit can be availed, Deepak Jain says. Chief Executive, TaxManager.in, a Tax Assessment and Compliance Management Portal.
You can claim HRA only if it is part of your salary. “To claim the benefit of HRA under section 10(13A), the person should not be the owner of such property and the rent is actually paid by the individual,” says Dr. Suresh Surana, Founder, RSM India.
However, the property owned can still be considered as a self-acquired asset which makes you eligible to claim deduction on both the principal and interest repayment of the home loan. “Section 23(2) of the IT Act lists out the circumstances under which the property can be treated as SOP (self-occupied property) by an assessee. The conditions are: Where the property consists of a house or part of a house which is— (a) occupied by the owner for the purposes of his residence; or (b) cannot be actually occupied by the owner by reason of the fact that his employment, business or profession carried on at any other place Because of this, he has to live in a building that doesn’t belong to him. Moreover, the property should not actually be let out at any time during the year,” says Surana, Founder, RSM India.
However, other reasons to live in the same city may not help in claiming the owned property as self-occupied and availing HRA tax deduction. “The provisions do not provide clarification/clarification/commentary on the definition of “other place” in respect of the property to be clearly situated in the vicinity/area/city/state. Further, on a plain reading of the rules, it shall be deemed They may not extend the benefit of considering property as SOP, if the individual cannot actually reside in a self-owned property due to the proximity of the children’s school,” says Surana.
So, if the reason is related to the place of employment, it will not be difficult to claim both the deductions together. Iyer says, “As per the Income Tax Act, a person can claim deduction for interest on housing loan for a property which the person cannot occupy any other place by reason of his employment, business or profession. ” “However, such a person should be careful and maintain sufficient evidence to prove that he has to stay at some other place because of his employment,” says Iyer.
Scenario 3: If someone rents out his house and lives on rent in the same city
Barring proximity to the workplace, there can be many other compelling reasons for a person to live in a rented accommodation and not in a house he owns. “These could be reasons that the house owned is too small for the family or the children’s school is near a rented accommodation,” says Jain. Can one claim both the deductions in such a case?
Yes, but this is not possible with a self-occupied house as it can happen only if you let your property on rent. “If a person lets out his property and resides in the same city or any other city, including the proximity of children’s school or place of job, etc., then that person can avail the benefits of HRA as well as home loan repayment. be eligible to claim. ,” says Surana. However, in case of let-out property, deduction only on interest payment is available.
If you have genuine reasons, there is no bar to claiming both deductions together. “For an assessee who lets out a house owned by him and is residing in the same city on rent for genuine reasons, one can claim tax benefits for home loan repayment on the property owned and HRA on the property. can also claim in which he resides.” Jain says.
However, the reason for staying in the same city on rent should be solid. Says Kaushik, “The genuine need to let out your house and live on rent may need to be justified to the Income Tax Department. There is a possibility of disapproval because there are no prescribed rules in the Act.”
Though you may have to waive the deduction related to the repayment of principal, you will be able to get a maximum deduction of Rs 2 lakh on the interest payment of your home loan. For many, this may work well as they may not require the principal repayment benefit at all as it covers EPF contribution, NPS contribution, children’s education fee, life insurance and ELSS, PPF, ELSS, NSC and investments. Like it can end in other ways. soon. If your annual interest payment is much more than Rs 2 lakh then there are changes that your net loss from income from house property exceeds Rs 2 lakh, giving you full deduction benefit irrespective of rental income.