It is a well-known fact that salaried individuals can save income tax on their rent through HRA (House Rent Allowance) exemption rules. It is also known that one can claim the tax saving benefits of home loans.

But, can we do it together? The answer is yes! Fortunately, the Indian Income Tax Code does allow us to claim both benefits together.

When can one claim tax exemptions on HRA and Home Loan together?

There could be situations where an individual has a home bought in his name and he is living on rent at the same time. For example, Sunil has bought a home on loan in Pune but his boss has decided that he will work from Bangalore for a few months. So, Sunil rents a house with his family in Bangalore. In this case, Sunil can claim tax benefits for HRA and home loan in his ITR.

But the Income Tax Officer (ITO) will only allow both exemptions to pass if both his houses (rented and owned) are –

1. Located in different cities
2. Located far away in the same city

If both houses are located in the same city, then Sunil may need to show additional proof of why he is claiming tax exemption for HRA and home loan at the same time.

Example of claiming tax exemption on HRA and Home Loan

Let us assume Sunny lives with his wife in a rented flat in Delhi. His parents stay in Mumbai at a house bought by Sunny. He continues to pay both, home loan as well as rent, from his salary.

Since both homes are in different cities, Sunny is eligible to claim tax exemption through HRA as well as the home loan.

HRA exemption is given by employers as a certain maximum amount.

The actual exemption will be based on your basic salary, your dearness allowance (DA), rent on the house, and location of the rented house.

For our example, Let’s assume that the maximum HRA given is Rs. 15,000 per year. Sunny’s basic salary is Rs. 30,000, the DA is Rs. 8,000, and the rent paid is Rs. 10,000 per month.

From the official HRA exemption calculator of the Income Tax department, we can see maximum exempted amount under HRA is Rs. 6,200.

Tax exemption rules for home loan are counted under two categories (on yearly basis):

1) Exemption on principal amount – up to Rs. 1 Lakh (under Section 80C)

2) Exemption on interest – up to Rs. 1.5 Lakhs (under Section 24)

For our example, let’s assume Sunny paid Rs. 20,000 per month towards EMI and Rs. 12,000 from it was principal.

He paid 2.4 LPA towards principal and Rs. 96,000 towards interest in one financial year.

As per tax exemption rules on home loans, he can claim Rs. 96,000 tax exemption under section 24 and Rs. 1 Lakh tax exemption under section 80C.

Conclusion

In the end, what matters is how carefully you plan your taxes. If you claim tax exemption under home loan as well as HRA,  you should be ready to furnish all the proofs when asked for. Without necessary proofs, you may incur heavy penalties from the IT department.