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HRA Exemption

Vivekranjan (CA FINAL) (99 Points)

13 February 2009

Can any salaried employee claim for both HRA and interest + principal on housing Loan? (Both Rent paying and House property is in the same city)

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Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (15145 Points)
Replied 13 February 2009

For claiming exemption on HRA foremost condition is that the assessee should pay RENT, only then one can claim exemption from HRA u/s 10[13A] of the I T Act read with rule 2A of the I T Rule.If you pay rent for whole year , you can claim exemption for the whole year. If you have paid for part of the year , you will get even then exemption.
Deduction of interest on loan is allowed only in three case

Tthe property is given on rent.
The property is self occupied
The property could not be self occupied on account of service/occupation, one can not live in the house.

So in case , you have taken loan for a house or flat which is not given on rent and which is also not self occupied for any reason and if that reason is not related to occupation, as per the law , you will not get deduction of interest of loan. This however is an exception.

If you have self occupied the house during the year and also paid , for some reason HRA for the whole year, you will be allowed exemption on HRA as well as the interest from the month you self occupied the house.

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Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (15145 Points)
Replied 13 February 2009

Whether HRA exemption and housing loan rebate can be claimed together.

Yes, both can be claimed , but in some special circumstances. For claiming HRA exemption under the I T Act, one has to pay rent. But if you have claimed that the house property purchased by is self occupied , which most of us do as the annual value of one house is taken as Nil , but even then interest deduction is allowed, how can you claim that you are paying rent.

Special Circumstance No 1

Suppose you are living in some other cities for employment purpose, and by taking loan you have purchased/constructed a house. In that case all these following things happen together

You may be staying in rented house and drawing HRA from your office.
The annual value of the property shall be taken as nil on account of section
You can claim interest from Nil value of property and repayment of principal amount can be claimed u/s 80C.

Special Circumstance No 2

You have built a house by loan and paying interest . You have given the house on rent . You are living in a house by paying rent. In this case ,

Your house property income will be computed by taking rental receipt of market value which is ever is more minus the interest paid and deduction @ 30% on account of repair.
You can also claim principal amount paid as deduction u/s 80C
You can claim HRA exemption as you are paying rent.

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