Oct 6, 2008

4 Ways to Get HRA Exemption Along With Home Loan Tax Benefits

AT the outset, let me clarify that there is no direct relationship whatsoever between claiming HRA tax exemption and claiming tax breaks on home loans (interest deduction under section 24(b) and principal repayment under section 80C). There are separate provisions in the income tax Act, 1961, for each of the two and one does not influence the other. Depending upon the particular facts and circumstances, you may or may not be able to claim both the benefits.

For claiming HRA tax exemption under section (u/s) 10(13A) of Income Tax Act, 1961, read with rule 2A of Income Tax Rules, the only condition is that you should be living in a rented accommodation for which you should be paying rent. Now, if you stay in your own house, you can’t pay rent to yourself and therefore the whole of the HRA received by you becomes taxable.

However, there still remains a possibility that even if you own a house, you stay in a rented accommodation/any other accommodation. It can be due to following reasons:

1. You've rented your own house while you stay in a rented accommodation
In such a case you'll be entitled for HRA tax exemption. However, rental income from your own house will be taxed in your hands while allowing interest deduction under section 24(b) and deduction for principal repayment under section 80C.


2. Your own house remains unoccupied while you stay in any other accommodation due to employment/business/profession reasons
You may stay at a place – it may be a different city or a different location within the same city - different from the place where your own house is situated.

Here there are two possibilities:

a. Rented accommodation i.e., you're paying rent
In this case, you can claim HRA tax exemption while your house will also be treated as self occupied house property for purpose of income tax and you'll get all the housing loan tax benefits i.e., both interest deduction u/s 24(b) and principal repayment under section 80C.

b. Non-rented accommodation i.e., you're not paying rent
As the rent is not being paid, the question of HRA tax exemption does not arise. However, your house will be treated as self-occupied and you'll get the housing loan tax concessions (i.e., interest deduction under section 24 and deduction for principal repayment under section 80C).


3. Your house remains unoccupied while you stay in any other accommodation due to any other reason whatsoever (other than professional/employment/business reasons)

Here again, there are two possibilities:

a. Rented accommodation i.e., you're paying rent
In such a case, although you'll be entitled for HRA deduction, your own house loses the status of self-occupied property and will be treated as deemed to be let out, and thus its notional rental income will be taxable in your hands.

b. Non-rented accommodation i.e., you're not paying rent
For instance, for your personal convenience you live with your parents in their house while your house remains unoccupied. Here, if you don’t pay any rent, you're not entitled for HRA deduction.

Further, your own house won’t be treated as self-occupied for tax purposes.In other words, your own house will be treated as deemed to be let out and its notional rental income will be taxable in your hands.

However, irrespective of tax status of house i.e., whether self-occupied/deemed to be let-out/let-out, you'll continue to get the interest deduction on home loan under section 24(b) and deduction for principal repayment under section 80C.


4. The new house is not in your name. It belongs to any of your relative (spouse/parent’s) and you actually pay rent to the owner of the house.
In such a case also you'll be entitled for HRA tax exemption but the owner of the house who may be your spouse or parent(s) is assessable for the rental income derived from the house. Also, remember that it should a genuine transaction and not a colourable device to evade tax.

However, there is a difference of opinion among tax experts regarding payment of rent to spouse. According to one opinion, there is nothing wrong in paying rent to a spouse so long as it is not a sham transaction. The other view is that there can’t be any commercial transaction between husband and wife.

I tend to agree with the second view and therefore recommend that it is prudent not to indulge in such a dubious transaction which can be questioned by tax authorities and entangle you in legal disputes. Otherwise also, it is always better to err on the side of caution.


Conclusion
In a nutshell, if you've a house, either stay in it or rent it out. Don't leave it vacant. In case you have to leave it vacant, it should be only for employment/business/professional reasons. Even in such a case you should be either living in a different city or at different place within the same city, and not in the immediate vicinity of your house (i.e., the location where you stay should be at a considerable distance from your own house). Otherwise, notional rental income of your house (even if it is the only house you own) becomes taxable in your hands although you continue to get the interest deduction on housing loan u/s 24(b) and deduction for principal repayment of loan u/s 80C.

Furthermore, as regards the HRA, you will be getting the tax exemption under section 10(13A) so long as you are staying in a rented accommodation and actually making the rent payment, irrespective of whether you are having your own house(s) or not.

Finally, If you would like know how to calculate HRA tax exemption, please read How to Calculate HRA Tax Exemption and if you've any query regarding HRA tax exemption, please read How to claim HRA Tax Exemption - Tips & FAQs.


Also see:

1. 10 Smart Tips for Making the Most of Section 80C Deductions

2. Home Loan: Tax Queries



34 comments:

  1. I am thinking of taking a home loan for buying a house in kanpur where my parents will live. I stay in mumbai in a rented flat.Which scenario of the above will apply in this case?

    ReplyDelete
  2. Yasharth: If you’re staying in a rented house in Mumbai due to professional, business or employment purpose, you’re eligible to claim both HRA exemption under section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules and home loan interest deduction u/s 24 (b) of the IT Act. From tax point of view, it is hardly of any significance whether your parents reside in your Kanpur house or it remains unoccupied.

    ReplyDelete
  3. ACTUALY THIS EXPLAINATION IS REALY GOOD. I WAS HAVING SOME DOUBT ABOUT TREATMENT OF HOUSE PROPERTY. BUT NOW I AM CLEAR ABOUT ITS TREATMENT.

    Thank you

    ReplyDelete
  4. I am currently living in a house leased by my company for me. In lieu of this I am losing my HRA against the rental payment to the land lady by my employer.

    Also I have taken a loan to purchase a house in the same city, but over 25 Kms away from my place and also the house is in an area lacking all civic amenities.

    How should I claim tax benefit on my home loan and will the rent paid by my company directly to my land lady be taxable on me?

    Thanks.

    Gaurav Goel

    ReplyDelete
  5. Gaurav,

    As per the facts stated by you, your own house can’t be considered in the immediate vicinity of your present accommodation provided by the employer. We can say that reason behind non-occupation of your own house is due to employment reasons. So, in my view, you are eligible for home loan tax benefits. To know more about tax concession available on home loans, see “Housing loan tax benefit –Section 80C vs. Section 24(b)”.

    Regarding the taxation of rent free accommodation provided to you by your employer, the nominal value of this perk is taxable in your hands. As per the latest rules for valuation of perks issued in Dec’09, the taxable value of rent-free accommodation (assuming it is unfurnished and no part of the rent is recovered from you) provided by the employer for the FY-2009-10, will be lower of the actual lease rental paid by the employer or 15% of your salary (basic + bonus + commission + fees + all other taxable allowances).

    ReplyDelete
  6. Hi this is Amit I have booked a flat in yet to be developed area in Ghaziabad and possession will be by next year but I am paying the EMI since August 09.I do got the tax certificate from bank stating dividing amount under principal and interest.I am staying in rented accommodation in delhi for which I am paying the rent.My question is can I get tax benefit on HRA and on EMI's payed.

    Thanks in advance,
    Amit

    ReplyDelete
  7. Amit,

    Right now, you’re eligible to claim tax benefits on HRA.

    You can also claim section 80C deduction on the principal component of the EMI. To claim tax deduction on interest on home loan, wait till the completion of the flat.

    ReplyDelete
  8. Thanks for the article Fisher.

    I have a question.. I have two houses both in same city (different places) and on loan from banks
    Now can I compute them together under the head "Income from House Property" to get advantage U/S 24(b) for the interest paid on these two loans (essentially resulting in a loss that can be set-off against my salary income)?

    I also am living in a rented accommodation in the same city( hence claiming HRA)
    So does one property must be "deemed self-occupied" in this case or can I get them both comupted + HRA?

    +Shashi

    ReplyDelete
  9. I live in ahmedabad. I have bought flat in 2006-07 and since then i was taking benefit of housing loan principal and intrest payment in my tax returns upto 2008-09. Please note that the house and loan taken on joint name i.e. first my name and second my mother's name. Now in 2009-10, i have decided to move to another rented flat in same city with my spouse and my mother continued to live in the flat which we bought in 2006-07. Hence, i have asked for HRA exemption in 2009-10 but my employer being reluctant to grant that by giving me argument that it is technically not correct. Is this really true ? It is not possible that i should be granted HRA exemption for 2009-10 evenif my mother would take benefit of housing loan principal and intrest payment in her tax return for 2009-10 and not me.

    Thanks in Advance,
    Ravi Shah

    ReplyDelete
  10. Ravi,

    First you need to tell why did you shift to a rented accommodation?

    ReplyDelete
  11. Well i have shifted to rented accomodation due to personal reasons.

    Ravi

    ReplyDelete
  12. Ravi,

    Your employer can’t deny you HRA exemption; however, your house (according to your share in the property) will be treated as deemed to be let out and its notional rental income will be taxable in your hands.

    ReplyDelete
  13. Thanks for you response but as i said my mother is living in house so in reality i am not getting any rent income. In this case also national rental income would play its role?

    Thanks,
    Ravi Shah

    ReplyDelete
  14. Ravi,

    Yes, notional rental income will be taxable even though your mother is living in it and no rental is received. The word ‘notional rent’ means rent deemed to be received even though not actually received.

    ReplyDelete
  15. AnonymousMay 06, 2010

    Hi, I need your suggestion on the below query:

    Assessee was in overseas country for a short while say 6 months or so and his family was left behind in India. During his stay abroad he was provided with an accommodation by his employer and his family continued to stay in the rented accommodation in India. Can you please let me know, whether the assessee is eligible to claim the HRA exemption for the period during which he was exercising his employment outside India, on the grounds that his family was staying in the rented house?

    Also you may note that Rule 2A of the Income-tax Rules explains the meaning of the term “relevant period” as the period during which the said accommodation was occupied by the assessee during the previous year.

    Given the above context of the fact and law, could you please provide your inputs?

    ReplyDelete
  16. AnonymousMay 28, 2010

    My wife and me co-own a house in Mumbai. My wife paid around 30% of flat cost from her savings and remaining amount i have taken loan and repayment is being done solely by me. I receive HRA from my company. We stay in our owned house.
    Since i am not a single owner of the house, can we lease the house to our freind or realtive whereby we can earn rent on our seperate investment. E.g if rent is 10000..my wofe gets Rs 3000 and i get 7000. Can i get the same flat back on lease and pay rent from my income and claim HRA. I will also show rental income at income from house property. Pls advise.

    ReplyDelete
  17. Sir,

    I have taken a housing loan from HSBC bank and paying regular EMI.
    In this house, I have 2 portions.
    One portion is given out for rent and we live in the other portion.

    If the house is given out for rent, then the entire interest amount can be claimed as deduction under "Loss from house property" (it is 1.5 Lakhs for self occupied properties).
    Now, in my case (where part of the house is rented out), can I also claim entire interest for deduction?
    Can you point me to the right section in the IT Law which clarifies this?

    And I had claimed only 1.5 Lakhs as deductions under "Loss from house property" last year. So, is there any way, I can correct this and get a refund (assuming that, you will answer "Yes" for the above question)?

    Regards,
    Narendra

    ReplyDelete
  18. Hi Fisher,

    I joined a new company in Dec, 10 and did not submit my HRA claim by submitting rent slips in previous company (had HRA component in my salary). So now my current employer says that they can take slips only Dec onwards not before that. Could you please tell me is there any way I can refund that extra paid amount i.e. could still avail the tax exemption benefit.

    ReplyDelete
  19. Ratnesh,

    You can claim HRA tax benefit while filing your return of income and claim refund of the excess tax deducted at source from your salary.

    ReplyDelete
  20. Hi Fisher, My name is Kiran. I own a house in Bangalore for which I have availed housing loan and pay EMI every month. I have let out that property because it is very far from my office. I stay in a rented property near my office. Now my question is: Can I claim tax exemption for the property I own and also claim HRA for the rented accommodation? Please clarify. my mail id is kiran.vivekananda@gmail.com

    ReplyDelete
  21. AnonymousJuly 05, 2011

    I am working in Hyderabad. But I have taken a house on rent for my family at Mumbai. I want to know whether I can claim HRA benefit(Income tax) for the house rent paid by me at Mumbai where my family is staying.

    I do not want to claim any exemption for my accommodation at Hyderabad.

    ReplyDelete
  22. AnonymousJuly 05, 2011

    I was working in Delhi and taken a house on rent at Delhi. I resigned from my job and joined another job at Hyderabad.

    But my family is continuing to stay at Delhi and I am paying rent for the accommodation of my family at Delhi.

    At Hyderabad I am staying in Hotel. Can I claim HRA exemption for the house I have taken at Delhi on rent for my family?

    Babuji, Hyderabad

    ReplyDelete
  23. Sir,

    I have a Housing Loan Flat and also taken a rented house because
    the flat is small and my parents stay with me. So can I claim both
    Housing Loan rebate and HRA.

    ReplyDelete
  24. Can someone help me in changing this law? If I'm paying rent for myself both in the city where I'm working AND in the city where my dependents(wife, children, parents) are living, why should I be barred from claiming supposedly valid HRA exemption for the rent I'm paying for my family? This law needs ammendment. I want to support my family- in one city or another.

    ReplyDelete
  25. I purcahsed a new flat in 2012 & my office is around 30 kms from my house.
    My family stays in this house & i come on weekend to my house.
    On weekdays i stayed in rented house near my office.
    Can i claim both HRA & housing loan interst benifit

    ReplyDelete
  26. I claiming self occupied home loan interest as loss. My parents are dependent and living in different city (at my home town), I am paying rent for them. Am I eligble to claim HRA that I am paying for my parents?

    ReplyDelete
  27. Can I let out my own house, on which I have taken home loan, to my employer, who in turn gives me the same house as rent free accommodation? What will be the value of perks in that case? Will I be eligible to deduct full interest on home loan? Pls reply on id: kchitesh@yahoo.co.in
    Thanks.

    ReplyDelete
  28. i am having two flat out of which one is on rent one is where my parents are leaving and i am leaving in rented premises can i claim exemption on all

    ReplyDelete
  29. Can I claim self-lease on a flat where I am co-owner?

    ReplyDelete
  30. Helllo,

    I brought house in pune it is located at katraj and right now for employment i am leaving @ hinjewadi which is 28 km from my owned house.
    both (own house and rented flat are in same city @ distance of 28 km)

    How to avial tax benefit on HRA as well as Housing principle and interest?????

    ReplyDelete
  31. Can HRA be claimed on an Hotel accommodation, which is not provided/paid by the employer. The employee stays in a Hotel accommodation and provides a consolidated receipt.

    ReplyDelete
  32. Sir, I am in government service living in wife name flat and my wife working in private school. Can we both claim hra and how?

    ReplyDelete
    Replies
    1. No, You both can not claim HRA.

      for more details visit http://laqsh.in/forum/hra-house-rent-allowance/

      Delete
  33. House is in my name and currently occupied by father and mother and I am staying in rented house and in the same vicinity. Can I claim both. I am not getting any rent from my own house

    ReplyDelete

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