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can-hra-be-claimed-with-interest-on-home-loan

 

Can HRA be claimed with Interest on Home Loan

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Introduction-

House Rent Allowance can be availed along with Interest on Home loan- Everyone has their own dreams, whether it about cars, houses or their career. Most people I know dream to have the biggest and luxurious house. So can we fulfill our dream to purchase/construct a new house and also claim the deductions for Interest paid on Home Loan along with Principal repayment under Income Tax Act.

   
Regarding claim of House Rent Allowance along with Deduction of Interest on Home Loan:
  1. An Assessee can claim House Rent Allowance in respect of rent paid for residential accommodation occupied by him if HRA received is a part of salary. It can be exempted under section 10 (13A).
  2. He can also claim deduction for Interest taken on Home Loan, if he is not residing in his purchased property. This claim comes under section 24 (b) of Income from House Property.
  3. Even he can claim deduction under section 80C for repayment of home loan.

For Example

Mr. Sumit lives in Chandigarh, during the financial year 2017-18. He has paid a rent of Rs 1,44,000 and availed HRA of Rs 1,80,000. His basic salary is Rs 30,000 per month. He has taken a loan to buy a house in Panchkula where his parents, children and spouse are currently living. He has taken a loan from a bank to buy the said house and he has total paid Rs. 2,70,000  during the year, out of which he paid Rs. 1,80,000 towards interest and Rs. 90,000 towards Principal.
 
1. HRA Exemption -

House Rent Allowance exemption under section 10(13A) is allowed if he is getting House Rent Allowance  as part of salary and full fill below two conditions:

  1. He has taken a residential accommodation in which he resides on rent.
  2. He has not occupied such property in which he resides.
 
How to calculate HRA : Use HRA exemption calculator-
 

HRA Exemption can be claimed whichever is lower on the following basis:-

  • Actual HRA Received
  • Rent paid minus 10% of Salary
  • 40% of salary if he resides in Non Metro City or 50% of salary if resides in Metro City.

Taking into consideration example stated earlier:

Mr. Sumit lives in Chandigarh. He has paid a rent of Rs 1,44,000 and availed HRA of Rs 1,80,000. His basic salary is Rs 30,000 per month.

Mr. Sumit can Claim HRA exemption as below, which is the least:

1. Actual HRA Received 1,80,000
2. Rent Paid minus 10% of Salary i.e. 1,44,000-(10% of 3,60,000) 1,08,000
3. 40% of Salary because he is living Non Metro City 1,44,000

So, Mr. Sumit is eligible for HRA Exemption under section 10(13A) of Rs. 1,08,000 in the financial year 2017-18

 
2. Deduction for interest on repayment of home loan -

He can also claim deduction under section 24 (b) of income tax act for Interest taken on Home Loan, if he is not residing in purchased property. The deduction under section 24(B) is as follow:-

In Case of Self occupied Property: Deduction for Interest is allowed Maximum of Rs. 2,00,000 in a financial year.
In Case of Let out Property: Deduction for Interest, there is no Maximum limit in a financial year.

Taking into consideration example stated earlier:

Mr. Sumit Lives in Chandigarh on rent and he purchase a house in Panchkula where his family lives. He has taken a loan for purchase of that house and pays Rs.1,80,000 towards on account of interest.

So, Mr. Sumit is also eligible for deduction of interest under section 24(B) under the head of Income from House Property is 1, 80,000 in the financial year 2017-18.

 
An Asseesee is eligible for deduction under section 80C for repayment of principal towards loan taken for purchase of a house. Taking into consideration example stated earlier:
Mr Sumit Lives in Chandigarh on rent and he purchases a house in Panchkula where his family lives. He has taken a loan for purchase of that house and pays Rs.90,000 towards on account of principal.
Now, He is also eligible for deduction under section 80C for Rs. 90,000 towards repayment of Principal amount in the financial year 2017-18. (Maximum deduction allowed under section 80C is Rs. 1,50,000)    

Conclusion:-

Mr. Sumit can claim the following amount as deduction in the financial year as follows:

1. House Rent Allowance under section 10(13A) 1,08,000
2. Deduction for Interest paid on Home loan under section 24(b) 1,80,000
3. Deduction for Investment under section 80C 90,000
 

In spite of deduction under section 24 (b) for interest paid on Home loan up to Rs. 2,00,000, we can also claim additional deduction for interest paid under section 80EE for Rs. 50,000/- for first time purchase of a house are as follows: 

This is good option that can be availed by first time buyers.

  1. The house should be first time purchase.
  2. This deduction would be allowed only if the value of the property purchased is less than Rs.50 lakhs and the value of loan taken is less than Rs. 35 lakhs.
  3. The loan should be sanctioned between 1st April 2016 and 31st March 2017.
  4. The benefit of this deduction would be available till the time the repayment of the loan continues.
  5. Deduction for interest paid is allowed to Rs. 50,000/- per annum.
 
See the related post : How to download Form 26AS Online



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