Double Tax Benefit: Can You Claim Both HRA and Home Loan in Your ITR?
The short answer is a resounding YES, especially if you’re opting for the Old Tax Regime!
Many individuals find themselves in a unique financial situation: paying rent for one home while simultaneously shouldering EMIs for another. The good news is that the Indian Income Tax Act allows you to leverage both these expenses to significantly reduce your tax burden. Let’s delve into how you can claim these valuable “double tax benefits.”
Understanding House Rent Allowance (HRA) Exemption
HRA is a tax exemption designed to help salaried individuals offset their rental expenses. Under Section 10(13A) of the Income Tax Act, you can claim the lowest of the following amounts:
- The actual HRA you receive from your employer.
- 50% of your basic salary (if you live in a metro city like Delhi, Mumbai, Chennai, or Kolkata).
- 40% of your basic salary (if you live in a non-metro city).
- The actual rent you pay minus 10% of your basic salary.
Unlocking Home Loan Deductions
Separately, the Income Tax Act provides robust deductions for home loan repayments:
- Interest on Home Loan (Section 24(b)): You can claim up to ₹2 lakh per financial year for the interest paid on a home loan for a self-occupied property. If the property is let out, there’s no upper limit on the interest you can claim, though the loss from house property that can be set off against other income in a given year is capped at ₹2 lakh.
- Principal Repayment of Home Loan (Section 80C): You can deduct up to ₹1.5 lakh per financial year for the principal amount repaid on your home loan. This deduction falls under the broader Section 80C limit, which also covers other popular investments like PPF, ELSS, and life insurance premiums.
The Power of “Double Benefits”: When & How
There’s no legal bar preventing you from claiming HRA simply because you also own another property with a home loan. This scenario is common for many salaried professionals who relocate for work, maintain a family home in their hometown, or even have a property under construction.
You can claim both benefits if your claims are genuine. This means you genuinely reside in a rented property while also paying EMIs for a different house. Common scenarios include:
- Relocation for Work: You live in a rented apartment in your work city while paying EMIs for your ancestral or self-owned home in another city.
- House Under Construction: You’re living in rented accommodation while your new home, for which you’ve taken a loan, is still being built.
- Renting Out Your Own Property: You’ve rented out your owned property and are living in a rented house yourself. (Remember to declare the rental income from your owned property!)
In essence, under the Old Tax Regime, you can potentially claim all three: your rent payments (via HRA), the interest on your home loan, and the principal repayment on your home loan.
What to do if TDS was higher? If your employer deducted more TDS because you hadn’t submitted a combined claim, don’t worry! You can still claim the full eligible exemption and deductions when you file your Income Tax Return at the end of the financial year. Be sure to have your rent receipts and the home loan interest certificate from your bank ready.
Crucially:
- Report Rental Income: If you’re receiving rent from the house for which you’re paying EMIs, ensure you accurately report this rental income in your ITR.
- Choose the Correct ITR Form: Select the appropriate ITR form based on your sources of income (e.g., ITR-1 for salaried individuals with one house property, ITR-2 for multiple house properties or more complex income scenarios).
- Genuine Claims are Key: The Income Tax Department verifies all claims. Ensure your claims are genuine and supported by proper documentation to facilitate a smooth refund process, if applicable.
By understanding these provisions and maintaining meticulous records, you can effectively optimize your tax planning and enjoy the significant benefits of both HRA and home loan deductions.