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Hra exemption

S. MOHAN (ACCOUNTS OFFICER) (104 Points)

31 October 2011

I am having a housing loan jointly in my mother's and brother's name who are staying in one of the house. I am staying in the same building in different house with my family. and paying rent to my mother. Can i claim HRA exemption and also Housing loan interest benefit in my salary I.tax computation. I am receiveing HRA from my employer 8125/- PM. If i am eligible for HRA exemption Plese let me know what is the rent receipt amount to give for I tax computation to my employer so that my tax burden will reduce.

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PRAVEEN KUMAR (MBA (Finance) B.Com.(P)) (3443 Points)
Replied 31 October 2011

Yes one can avail both tax benefits on home loan and HRA provided he satisfies particular conditions.

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A house is one of the biggest investments we would make in our lifetime. Most of us might already know that our home loans are eligible for tax benefits under the Income Tax Act but there is yet another component that is connected to our taxable income. This is known as House Rent Allowance (HRA).

HRA is a component of your salary package and is given by an employer to an employee for the sole purpose of meeting the cost of renting a home. An HRA allowance is allowed to any person who is staying in a rented property and the rent should exceed 10% of the basic salary. But if one is serving a home loan then is he eligible for the HRA benefit is an important concept that needs a thorough study.

However HRA and home loan provisions are two different issues as far as the Income Tax Act is concerned and one does not influence the other. Home loans are entitled for Tax benefits under Section 80C (Tax benefit on principal repayment) and Section 24 (Tax benefit on interest payment) of Income Tax Act. On the other hand HRA benefit can be availed or not depends on certain situations. Let us evaluate these situations:

1. Living in your own home

If you have taken a home loan to purchase the house you are residing in then you are not entitled for the HRA benefit since you are not residing on a rented property. However tax benefits on principal repayment and interest payments can be availed by the person.

2. Home possession in another city

For instance you have a house in one city for which you have taken a home loan and you reside in another city due to work or similar reasons, then you are eligible to avail all the benefits including HRA, tax benefits on principal repayment of home loan and tax benefit on interest payments of home loan.

3. Home not ready for use

Let us say that you have a home in one city for which you have taken a home loan and you are residing on a rented property in the same city because your home is not ready for use, then in such a case you are entitled to both tax benefits on principal repayment and interest payment on home loans as well as the HRA benefit. However the claim of tax benefits on home loans can be made only when the home is ready for use in that financial year and once the home is ready to live, the HRA benefit stops.

4. Home not fit to reside

Suppose you take a home loan to buy a house and it is also ready for use but somehow you are unable to reside in it due to genuine reasons like the home is at a considerable distance from your work place. Therefore you take a rented house near the office, so under such a situation also all the benefits can be availed by the individual. However your employer might deny giving an HRA benefit since both houses are in the same city.

5. House given on rent

There may be a situation that you have got the house for which you had taken the home loan but instead of using it yourself, you have rented it out and you continue to reside on a rented house then you can claim all the tax benefits and the HRA. But it should be noted that rent received by you is considered as your taxable income.