HRA and home loans are terms familiar to taxpayers. They are both related to the expenses of a house and can be claimed for tax exemption purposes. But how do they function and are they interrelated? Read ahead to find out. 

What is HRA?

If you check your salary slip, you will notice a component called HRA or house rent allowance on it. It is an essential component of your gross salary. It is given by the employer to you as their employee to cover the expenses of renting a house. You must live in a rented house that is not owned by you to avail the benefits of HRA or apply for an exemption. 

What is a home loan?

A home loan or housing loan is money that you borrow from the bank or any NBFC to purchase a house. The loan is paid back in Equated Monthly Instalments (EMIs) at a fixed rate of interest over a period. Home loan eligibility may vary from one bank to another, depending on your loan requirement and credit score, but the failure to pay back the loan always results in legal action against you. 

Can you claim HRA and home loan as a tax exemption?

If you are paying rent for a property, you can claim HRA exemption under Section 10 of the Income Tax Act, 1961. Similarly, if you have a housing loan, you can claim tax benefits under Sections 80C and 24B. Home loans and HRA are found under different sections of the Income Tax Act but can be claimed together under certain circumstances. For instance: 

  • You live and pay rent in one city but have bought a house on loan in another town 
  • The house you bought on loan is under construction 
  • You have not yet moved into the house that you purchased for certain reasons 
  • You have rented the house you bought on loan and are living in another rented house yourself 

What should you look out for as a tax filer?

If you are wondering which of these two can get you a higher tax exemption, it is advisable to discuss these options with an expert. However, an important point to consider here is that renting a house and availing a home loan both are long-term expenses. The taxation rules may change over time and so can home loan interest rates, your income, and personal needs. For example, as per the existing rules, your rent must be more than at least 10% of your gross salary for you to claim HRA exemption. You also need to furnish your landlord’s PAN Card details. 

These rules could change in the future. You must look at the bigger picture and see how it benefits you personally and not just decide based on the offered tax benefits.

Home loans with flexible EMIs from Tata Capital are a preferred option for you if you are looking to fulfill your dream of owning a house. However, when deciding, you should consider using a home loan EMI calculator to understand how a housing loan can impact you in the long run.

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