As a homeowner, you may have at some point wondered whether you are eligible to avail the tax benefits of both HRA (Home Rent Allowance) and home loans simultaneously. “Do I mandatorily need an HRA receipt from my employer to avail HRA benefits?”, “I own two houses, of which my parents live in one and the other has been leased out. As for me, I live in a different city for work purposes and am living in a rented apartment. Will I be able to avail the tax benefits on my home loan as well as the HRA benefits of my rented apartment at the same time?” are questions too common. This article attempts to clear doubts in this regard.
Availing HRA Benefits
HRA tax benefits are available only to salaried employees who receive an HRA from their employer. Hence, the same will not be applicable to individuals who are either self-employed or those who have not received an HRA from their employer. Moreover, HRA benefits are available to those who self-occupy the residential unit. Meaning, HRA benefits cannot be claimed if your parents or siblings are occupying the property, even if they are fully dependent on you. The tax benefit on HRA is not available for those individuals who are partly or fully owners of the property. For instance – If you jointly own the property and make some rent payment to the co-owners, this amount cannot be claimed for HRA benefits. The question is, how is this applicable if the property is fully owned by you? Well, if you lease out a property fully owned by you to your employer and the employer in turn lets it out to again to avail tax benefits (in the form of 30% standard deduction and interest paid on home loan), you will not be able to claim HRA tax benefits. The HRA receipt from your employer is a mandate for availing the tax benefits on HRA.
Prerequisite for Availing Home Loan Benefits
Tax benefit for principal repayment of home loan can be availed as per Section 80 C and interest deduction on home loan is available as per Section 24(b) of the Income Tax Act provided you are the legal owner of the property. This clause is applicable to houses that are under construction. This implies that the said two benefits cannot be availed for houses under construction. Tax benefits are available for only residential houses whereas interest benefits are available for both residential and commercial houses. For individuals owning more than one house, only one is regarded as self-occupied property while the others are treated as let out and one needs to pay notional market rent on the same for tax. It has been proposed in the 2019 Finance Bill to consider two owned properties instead of one as self-occupied.
Claiming Both HRA and Home Loan Benefits
The legal provisions for HRA, as provided under Section 10(13A) of the Income Tax Act and rule 2A of Income Tax Rules do not restrict an individual from claiming HRA benefits in case they own a house but there are certain conditions that must be met. You can claim HRA for a house located in the same city where you’re working and for which you have taken a housing loan and your parents are occupying provided you live in another house for which you pay rent. You can avail tax benefits on the afore-mentioned home loan.
In short, yes you can claim tax benefits on both HRA and repayment of housing loan but in such cases, the Income Tax Department will closely monitor the situation if the amount is high and may even discontinue claim allowance if adequate explanations are unavailable.
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