HRA & Home Loan Tax Benefit can be Claimed Together: Finance Trading Times

HRA & Home Loan Tax Benefit can be Claimed Together

Details about how to claim HRA & Home Loan Tax Benefit together
Many individuals feel that if they have a Home Loan for which they are paying an EMI but not residing in that home, and staying in a rented apartment, then they cannot claim for both the tax benefits of HRA and Home Loan repayment. However, this is NOT true. The Income tax rules allow you to claim both HRA (House Rent Allowance) Tax benefit and Home Loan Repayment Tax benefit together, based upon certain conditions. Let's see the details of it in this article.

Claim Both HRA & Home Loan Tax Benefits Together

Majority of the people who take home loan belong to the service class. Among them also, the majority are those who migrate from their native town to usually a large metro city for employment reasons. Now the struggle begins - take a home on rent, if real estate rates permit affordability and home loan is available, book a flat to be purchased.
However, majority of the flats being sold are under-construction flats. That leads to a problem - unless the flat is ready to move in, the loan borrower has to continue his stay in a rented apartment, while he still has to pay EMI for his home loan on the under-construction flat. That leads to a situation where one ends up paying both EMI (or pre-EMI) for his home loan as well as House Rent. HRA Home Loan Tax Benefit
Take the second case - you bought a flat in Mumbai on home loan, but after that you move to Bangalore as you got a better high paying job there. So, your EMI is going on for your Mumbai based Flat, while you are paying rent in Bangaloe for your Bangalore based flat. Again, the situation is where you are paying both EMI on Home loan and rent for your rented flat.
If you have any questions/queries regarding home loans or HRA claims, the FT Times team will be happy to address them. Please post your questions in the comments section by clicking on the link "Post a Comment" at the end of this page

Here, we discuss the possible scenarios where you are eligible for claiming tax benefit on home loan and HRA (House Rent Allowance):

Scenario 1: You buy a house by taking Home Loan, get the possession and are currently staying in that house:
Since you are staying in your own purchased house, you can NOT claim for House Rent Allowance.
Please remember that HRA can be claimed only if you (as a tax payee), are staying in a rented home.
In this case, since you are not staying in a rented house, you cannot claim for HRA.

However, you can surely claim for Home Loan Tax benefits.

Scenario 2: House purchased on Home Loan in one city, Living in another city on rent:
This is the scenario we described above with the example of Home purchased on loan in Mumbai and working and living in Bangalore on rent.
In such a case, you are eligible for both claiming both HRA (House Rent Allowance) Tax benefit as well as the Tax benefit on your home loan repayment.

Scenario 3: Home purchased on Loan but not ready for possession, staying on rent in same city:
This is the most common scenario - you have booked an under-construction property and it will be ready after a few months to few year for you to get possession. Hence, you are currently staying on rent in the same city where you have booked property on home loan.
So there are two phases here:
Phase I - Under-construction & stay on Rent :
You are eligible for HRA claim, but you are NOT elgibile for Home Loan tax benefit. This situation will remain till the date you get the possession of your purchased flat.
Phase II - Purchased Flat possession given, you vacate the rented apartment & move in to your purchased flat:
After you get possession of your purchased flat and you move in there - the situation reverses. Now, you CANNOT claim for HRA, but you can now claim for Home Loan Tax benefits (both principle and interest repayment of home loan).

Also, whatever EMI (or pre-EMI) you paid during the Phase I, you can claim 1/5th or 20% of that in a period of 5 years starting from the year you got possession - See this article for details

Scenario 4: Purchased Home possession received, but not suitable for staying. You take another rented flat in same city:
This is the when you purchase home on loan which is on the eastern end of the city and get the possession of house.
Your EMI is going on. Suddenly, your employer shifts his office to western end of the city making it impossible for you to travel such a long distance daily. Hence, you vacate your self-possessed home on loan, an take another one on rent which is near to your office.
Now, we are not aware of any hard and fast rules on this case, because the reason for such a case has to be genuine. We dont know if there is any specific distance prescribed in the IT rules for claiming it to be a genuine reason for getting into such a situation.
However, you are eligible for claiming both the HRA and Home loan tax benefit in such a case. It is possible that the Finance and Payroll department may deny your claim, but you must check with a qualified tax expert about your case and file for a tax benefit refund if your case is genuine and not accepted by your employer.

If you have any questions/queries regarding home loans or HRA claims, the FT Times team will be happy to address them. Please post your questions in the comments section by clicking on the link "Post a Comment" at the end of this page

Scenario 5: You have a possession ready home on home loan, but you put it on rent and stay in another rented apartment
This scenario can occur as an extension of Scenario 4 where you put your owned house on rent as you move to other part of the city.
It can also occur when all of a sudden rental rates in the locality of your area have increased, say to 20K and you can get a cheaper rented flat near your office for just 8K rent. So, you put your purchased house on rent for 20K and take another home at 8K rent, reaping the benefit of 12K plus the proximity to your office.
In this case also, you should be eligible for both HRA tax benefit as well as Home Loan Tax benefit on both principle as well as interest payment. Employer might deny it, but again check with a tax expert.
However, you must note that the income you are getting from putting your house on rent is taxable. So make sure to pay taxes on that income
Have Comments or Questions? Please post them as comments using "Post our Comments" link below. Your queries will be responded for free in 24 hrs!

24 Comments: Post your Comments

Pinkal Khatri said...(on 20 June 2011 at 04:11 )  

my annu.income for yr is arround= 5.5 laks
investment made:
Housing loan interest = 92000
mediclaim premium = 4200
PF = 30000
LIC = 15000
Housing loan principal = 18000
(Planning)for H.loan repayment = 750000
i am getting Rs.1610/PM Hosing loan intrest subsidy from my company.

Please suggest me how much i have to pay home loan principal repayment to get the maximum benifit of tax.

i have FD of rs. 7,00,000 at avg interest of 9.25%
My housing loan interest rate is 10.75%

pls suggest the best way..
thanx

Anonymous said...(on 20 June 2011 at 04:47 )  

Hi Pinkal, Thanks for your question.
You've not mentioned somethings clearly. To help you properly, Please provide the required information for me to help you further.

1) When you say "mediclaim premium = 4200", is it the life insurance premium or is it the amount paid as premium towards mediclaim?
2) Please see Complete List of Qualifying investments under section 80C for all the things covered under section 80C and provide details of what all investments you have under section 80C items (as listed in above article).
Thanks

Anonymous said...(on 18 July 2011 at 04:34 )  

Hi,

Am in rented house and paying Rs 10,000/- per month.

I booked a flat for Rs 28,50,000/- and took 20 Lac home loan. Date of possession will be Jan 2012

Now am paying PreEMI from Apr 2011. Expecting to be pay Rs 80,000 before date of possession.

I will be stay in new home once it completed.

My question is

1. Can I get HRA and Homeloan (interest + repayment of principle) tax benefit on this finanacial year?

Total expenses for this year is 90000+80000+57901 = 227901

Below is the split-up on expenses
---------------------------------
Rent paid for 9 months (from Apr to Dec) is 9*10,000 = 90,000

-- PLUS --

PreEMI until december is 80,000 (approximate)

-- PLUS --

EMI from Jan 2012 to Mar 2012

Interest = 49934
Principle = 7967

Monthly EMI = Interest + Principle
**********************************
19300 = 16667 + 2634
19300 = 16645 + 2656
19300 = 16623 + 2678
-----------------------------
57901 = 49934 + 7967
-----------------------------

So how much I can get benifit from section 80c and 24b along with HRA

Note: HRA allowance for this year is RS 1,15,764/-

Pritesh said...(on 20 July 2011 at 04:07 )  

Hi,

I am paying pre-EMI (Rs. 21684) from September-2010 and staying on rent in the same city. The pre-EMI amount comprises of both principal and interest component which varies from month to month EMI based on the payments which are made to builder every month or 2 month based on the status of work completed. I am supposed to get possession in November-2011. I am paying Rs.8000 as rent. I already filed return for financial yer 2010-2011 without showing any details of interest paid for home loan. My questions are:

1. For current financial year how to take benefits of HRA and Home Loan EMI paid assuming I will get possession in November-2011?
2. What about the interest amount which I had paid as part of EMI during September-2010 and March-2011? Will I be able to take benefit on this as I have not mentioned any loss while filing return of FY 2010-2011?
3. What about the interest amount which I am going to pay as part of EMI during April-2011 and October-2011 assuming I will get possession in November-2011?

Pritesh said...(on 20 July 2011 at 04:13 )  

Hi,

I am paying pre-EMI (Rs. 21684) from September-2010 and staying on rent in the same city. The pre-EMI amount comprises of both principal and interest component which varies from month to month EMI based on the payments which are made to builder every month or 2 month based on the status of work completed. I am supposed to get possession in November-2011. I am paying Rs.8000 as rent. I already filed return for financial yer 2010-2011 without showing any details of interest paid for home loan. My questions are:

1. For current financial year how to take benefits of HRA and Home Loan EMI paid assuming I will get possession in nevember-2011?
2. What about the interest amount which I had paid as part of EMI during September-2010 and March-2011? Will I be able to take benefit on this as I have not mentioned any loss while filing return of FY 2010-2011?
3. What about the interest amount which I am going to pay as part of EMI during April-2011 and October-2011 assuming I will get possession in November-2011?

Thanks

FT Times Correspondent said...(on 21 July 2011 at 00:04 )  

Hi Pritesh,

Thanks for your questions. Here are the responses:

1) Since you have not yet received the possession, you cannot claim the Home Loan Tax Benefit. You can only claim the HRA benefit

2) You can take the benefit of the pre-EMI payments after you get the possession. That will be in 5 equal installments spread over 5 years..see article: http://www.finance-trading-times.com/2011/06/2246-home-loan-pre-emi-tax-benefit-for.html which describes the scenario

3) Again, since its a pre-EMI period, you cannot claim tax benefit on that till you get the possession.

Feel free to follow-up in case of any further questions.

Thanks
FT Times

Palash said...(on 24 July 2011 at 23:43 )  

I am staying right now in a rented accomodation. I have got possession of my flat, but it is still not "suitable for living" (ala scenario 4) as interior work is going on. Can i claim both HRA and HL for the period i keep on living in the rented accomodation.

Pritesh said...(on 25 July 2011 at 23:13 )  

Hi,

Thanks for your response. Even I went through the link shared. It clears some of my doubts. But still confuse on few points.
May be I had not presented the question properly. First of all as of now I am not going to claim any tax benefit on EMI I am
paying for current financial year (2011-2012) until I get possession. Only reason to ask the question now is that I can plan
my other investments for current financial year accordingly.

Let me put my question in other way assuming I am going to get possession in November-2011:

In December-2011 I can claim tax benefit on:
1. HRA for period April-2011 to November-2011 (8 Months)
2. Sum of Principal Amount from the EMI which I will pay from December-2011 to March-2012 (4 Months)
3. Sum of Interest Amount from the EMI which I will pay from April-2011 to March-2012 (12 months), which will be more
than 1.5 Lacs. So no need to consider the interest amount from pre-EMI which I had paid in previous financial year
(2010-2011) as per the formula mentioned on the link shared (i.e. 1/5th of sum of interest amount in pre-EMI).

Please correct me if any of above understanding is wrong.

Thanks,
Pritesh

FT Times Correspondent said...(on 28 July 2011 at 01:36 )  

Hi Palash,

Yes, you should be able to claim both the HRA as well as the Home loan tax benefits, as mentioned in the article http://www.finance-trading-times.com/2011/06/2243-hra-home-loan-tax-benefit-claimed.html

Let us know in case you need any more details.
Thanks

FT Times Correspondent said...(on 28 July 2011 at 04:34 )  

Hi Pritesh,

To answer your new questions:

1) Yes.

2) Yes. And note - not just dec 11 to Mar 12 PRINCIPLE amount, you can claim tax benefit on principle amount of entire financial year (apr 11 to mar 12) ... See http://www.finance-trading-times.com/2011/06/2246-home-loan-pre-emi-tax-benefit-for.html
It's only the INTEREST part which has the 1/5th condition.

3) From the date of your pre-EMI first payment, (say dec 2010) till the month you get possession (say Nov 2011), you add all that interest amount together. This is your TOTAL PRE-EMI interest part. Divide it into 5 parts, and claim benefit on this 1/5 portion in each financial year.

Let us know if you need any more details.

Yassiguy said...(on 2 September 2011 at 08:13 )  

Very Useful Article. Thanks a bunch. However, this doesn't cover my scenario. I'm constructing a house in coimbatore for which I've taken home loan for 20 lacs. I'm currently staying in bangalore and paying Rent. The house will be ready only by jan 2012. Is it possible for me to claim tax exemption on house loan for this financial year (ie 2011-2012)

Thank you,
Yasser

FT Times Correspondent said...(on 5 September 2011 at 00:05 )  

Hi Yasser,

Since your house will be ready for possession in January 2012, you should be able to claim tax benefit in the financial year 2011-12, since it runs from Apr 2011 to March 2012, and your possession will be mid-way in January.
However, we're not sure about the proof of possession as in your case you are getting it constructed on your own.
Usually, most of the cases are of people buying house from builders, and builders provide a "possession-letter" to the buyer with a possession date mentioned, which serves as a certificate of possession date. In your case, we recommend that you take a similar certificate from your engineer or architect mentioning the house is ready for possession or even better to take a completion certificate from the local Municiple corporation, if that will be possible for you.

The above information is based upon the general understanding at the time of writing the article. Readers are advised to check with a certified tax consultants for their particular cases, as rules and regulations keep changing from time to time and each case is different for different individual

See more All Home Loan Articles
Do no hesitate to contact us in case you have any more questions.

Thanks
FT Times

Ankush said...(on 14 September 2011 at 00:29 )  

The house that I live in, is owned by my parents .My parents are paying home loan on the same.
I have bought another home in the same locality. I am also paying a home loan on the house that i have purchased. I have received possession for the flat that I have bought but i do not stay there. The home that i have bought has not been rented out and we do not
intend to rent it out.
Till date i have been availing the home loan benefit that is being paid by me (interest : 1.5 lacs and principal repayment approx 30K).
Request you to please clarify whether i can start claiming HRA also by showing a rent paid to my parents in the house that we currently stay ?

Thanks,
Rajesh

FT Times Correspondent said...(on 15 September 2011 at 01:59 )  

Hi,

Thanks you for your query to FT Times.

Please note that it is allowed to pay rent to parents or family members and claim HRA on that. However, you should also note that the the house which you bought on home loan, even if it is lying vacant, you are required to pay a tax on a "notional rent" for that house.
Why this is required and what this means?
As per the IT rules, any house lying vacant still needs a tax to be paid by the house owner on a notional rent which might have been received by the house owner in case the house had been put on rent. Hence, we dont really see any benefit in you claiming HRA tax benefit on rent paid to your parents and paying similar tax on the notional rent for your vacant house. Since you have got the possession of your house, you can claim home loan benefit which you are already availing.

Suppose you pay 10,000 as rent to your parents. Since your vacant flat is in the same locality, you expect a "notional rent" of similar 10K amount. Your Home Loan tax benefit stays as it is.
So for your taxes, you get tax benefit on the rent you pay to your parents, but the notional tax you need to pay on your vacant house notional rent nullifies that benefit. Moreover, whatever you pay to your parents as rent is taxable for them. So overall, you are not getting any tax benefit, but your parents are getting taxed.
If you dont get into any rent payment, then your parents are not taxed. You still have to pay tax on notional rent for your vacant house. Your Home loan tax benefit stays as it is.
Hence, both the cases are similar results. In the former, you end up doing lot more paperwork for receipts and agreement. While in the latter, you just take Home loan tax benefit which you are anyway availing.
Please feel free to contact us in case of any more questions.

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The above information is based upon the general understanding at the time of writing the article. Readers are advised to check with a certified tax consultants for their particular cases, as rules and regulations keep changing from time to time and each case is different for different individual

Unknown said...(on 20 March 2012 at 05:24 )  

Dear Concern,

Wanted to discuss a scenario 6 on this:

Scenario 6: Your parents are living in the house you own. So, you have to stay in a rented place in same locality.

Case 1: Can i claim both HRA and Home loan Benefit in this scenario?
Case2 : If i am Claiming only HRA then do i need to show "notional rent" on my home?

Rohit said...(on 6 May 2012 at 22:30 )  

Hi, my question is related to Scenario 4 actually. I have bought flat in Navi Mumbai with housing loan from my employer.

My office is in Mumbai, which is around 40 KM from that flat.

I have taken the possesstion of my flat. But I am staying on Rent in Mumbai near to office.

Further, my interest on said housing loan is coming around 2 lacs per year.

My queries are:

(i) In case, I leave my flat vacate and keep staying on Rent: Can I claim both HRA u/s 10 and Interest u/s 24 benefits and if yes, what amount of interest deduction I will get: Rs. 1.50 Lacs or Rs. 2 Lacs. (As flat will be treated deemed to be let out and I guess, limit of Rs. 1.50 Lacs is applicable only in case of Self occupied property.)

(ii)In Case, I rent out my new flat and keep staying on rent near office: What amount of interest deduction I will get.

SUGGESTION REQUIRED : Finally please suggest me better option to claim both HRA and full Interest deduction of Rs. 2/- lacs.

THANKS IN ADVANCE !!!

Rohit said...(on 6 May 2012 at 22:32 )  

Hi, my question is related to Scenario 4 actually. I have bought flat in Navi Mumbai with housing loan from my employer.

My office is in Mumbai, which is around 40 KM from that flat.

I have taken the possesstion of my flat. But I am staying on Rent in Mumbai near to office.

Further, my interest on said housing loan is coming around 2 lacs per year.

My queries are:

(i) In case, I leave my flat vacate and keep staying on Rent: Can I claim both HRA u/s 10 and Interest u/s 24 benefits and if yes, what amount of interest deduction I will get: Rs. 1.50 Lacs or Rs. 2 Lacs. (As flat will be treated deemed to be let out and I guess, limit of Rs. 1.50 Lacs is applicable only in case of Self occupied property.)

(ii)In Case, I rent out my new flat and keep staying on rent near office: What amount of interest deduction I will get.

SUGGESTION REQUIRED : Finally please suggest me better option to claim both HRA and full Interest deduction of Rs. 2/- lacs.

THANKS IN ADVANCE !!!

Shobhit said...(on 7 May 2012 at 01:21 )  

Hello Rohit,

Thanks for your question.

As mentioned in the article, it appears that you may be able to claim both HRA as well as Home loan tax benefit. However, you must check with your employer as different companies have different rules.
i) Irrespective of whether you keep your bought flat empty or on rent, the maximum tax benefit you can claim in limited to 1.5 lakhs on interest part and 1 lakh on the principle repayment part.

ii) Same limits apply for question 2 also.

Please note that in case you leave your flat vacant, then you still need to pay tax on the "notional rental income", i.e. If your purchased flat is NOT on rent and lying empty, IT rules still require you to pay taxes on expected rental income, (something which you may receive if the flat was actually on rent).


Please get back to us in case you have any more questions.

The above information is based upon the general understanding at the time of writing the article. Readers are advised to check with a certified tax consultants for their particular cases, as rules and regulations keep changing from time to time and each case is different for different individual

Narendra Talaviya said...(on 5 July 2012 at 10:50 )  

Hi!
my question is i purchased under construction property in month of april'2012. i will get possession in september'2012. my home loan will start from july'2012. till september 2012 i am staying in rented house. so, can i claim HRA benefit for the period of April'2012 to August'2012? Can i get tax benefit on home loan interest & principal amount from july 2012 to march'2012 in f.y. 2012 - 13?

Shobhit said...(on 6 July 2012 at 04:53 )  

Hello,

Thanks for reaching out to FT Times. You will get faster response if you email us on investntrade@gmail.com
To answer your query:
Since you will stay in rented property, you can claim HRA for the said period.
Home loan tax benefit can be availed only after getting the possession of the house ON THE INTEREST component. During the pre-possession period (under construction), you can claim tax benefit ONLY on the PRINCIPLE component under section 80C. So you cannot claim tax benefit on home loan for the entire interest plus principal amount for the above period because you dont have the possession of the home on which you took loan.
However, as explained in the article (http://www.finance-trading-times.com/2011/06/2246-home-loan-pre-emi-tax-benefit-for.html), you can claim tax benefit on home loan for the above period in 5 installments later.

The above information is based upon the general understanding at the time of writing the article. Readers are advised to check with a certified tax consultants for their particular cases, as rules and regulations keep changing from time to time and each case is different for different individual

Pankaj Bagaria said...(on 3 September 2012 at 00:33 )  

Hi,
I just booked a flat in bangalore, and i am working in the same city(bangalore) and me and my wife we both are taking home loan, my question is when i get tax benifits for home loan
1. 100000(80c)
2. 150000(24)

and my hra is 1.9 lakh that is more then 1.5 lakh so in this case i am getting loss...so plz advise me what can i do?

Pankaj Bagaria said...(on 3 September 2012 at 00:33 )  

Hi,
I just booked a flat in bangalore, and i am working in the same city(bangalore) and me and my wife we both are taking home loan, my question is when i get tax benifits for home loan
1. 100000(80c)
2. 150000(24)

and my hra is 1.9 lakh that is more then 1.5 lakh so in this case i am getting loss...so plz advise me what can i do?

Unknown said...(on 6 September 2012 at 07:01 )  

Hello friends at FT,

I sure if I correlate all the above scenarios, I may get an answer. But still wanted to confirm with my case.
I am purchasing an under-construction flat (as of Aug 2012) which I am pretty sure will be completed by Feb 2012. Bank will be disbursing the entire loan in instalments based on the completion. I may have to pay pre-emi till possession (Feb 2013)

Have the above said and assuming that the flat is possessed by Feb 2013,

1. Can I claim tax exemption for pre-emi during fy 12-13 (since I will be possessing the flat in fy 12-13)

2. Can I claim tax exemption for emi (both principal & interest) for Feb'13 & Mar'13

3. Can I claim HRA exemption till Jan'13 (before I take possession)

Please help.

Anonymous said...(on 30 January 2013 at 03:46 )  

Hi,

Thanks a lot for such a generous advice.

My query is that my PRE EMI every month is Rs. 16,000 whic has started from July 2012 and the flat for which i am paying the PRE EMI is under construction and the possesion will be given to me by 20th Feb 2013.

Also i have payed Stamp Duty and regestration for the same flat of Rs. 1,41000 in April 2012. so can i opt for tax exemption for this amount and under which section.

So Will i be getting tax exemption for all the PRE EMI that i have payed till Feb 2012 which sums upto somewhere near Rs.1,15000 as the possesion is also given in the same finacial year.

Also as of now i am living in a rented house for last one year so can i also opt for HRA Exemption?

Kindly help me to understand which of all these exemptions can i claim in this currenct financial year and how much.

Thanks in advance for your help.

Samir

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