Income Tax Returns (ITR) filing: Check out this big HRA, home loan tax deduction benefit surprise

Income Tax Returns (ITR) filing: Given that salaried individuals have very limited options to save tax, you would not want to miss any chance to lower your tax liability. Among options to exempt tax, house rent allowance (HRA) is one of the key ways to slash tax liability. On the other hand Home Loan can also qualify for tax exemption. But, is it possible to claim the HRA benefit and also the tax deduction benefit for home loan, both at the same time? Technically it is possible, but one needs to be careful about the procedure they follow while claiming such income tax benefit.

HRA and Home Loan’s Exemption Benefits

Income Tax Returns (ITR) filing: Under Section 10 (13A) of the I-T Act, HRA offered will be lowest of the following provisions:

-HRA allowed by the employer

-Employee living in Metro, then 50% of basic salary, else 40% of basic salary

-Actual Rent Paid ‘Less’ 10% of Basic Salary (Including DA and eligible commission)

On the other hand, Home loan tax benefit includes deduction up to Rs 1.5 lakh u/s 80 (C) against principal repayment and up to Rs 2 lakh u/s 24 (b) against interest paid on the home loan.

1. Income Tax Returns (ITR) filing: Owning A Home But Not Occupying It 

In case you have purchased a residential property on loan, but you live in another home which you pay rent for, you can claim available tax benefit for HRA as well as against the Home Loan. The condition however, is that both rented and owned property should be in different cities.You also have to furnish the reason for not living in your own home, which can be job location being different from home location, long distance from home to office, transfer from home location to another city and others, as long as it is reasonable. 

2. Income Tax Returns (ITR) filing: New Home Under-Construction And Living In Rented Home

This may be one of the most common scenarios, as you may have taken home on loan for a residential project which is under construction, so you live in a rented home till your own home is completed. In such a case, one can claim benefit of both home loan tax deduction benefit. The caveat though is that, claim can be made only for interest repayment and post possession of house you are allowed to get such deductions in 5 equal instalments in the next 5 years after completion. You are not allowed to claim deduction against principal repayment in such case.HRA can be claimed until completion as per your city and salary breakup as stated above. 

3. Income Tax Returns (ITR) filing: Letting Out Owned Property And LivingIn A Rented House

In this case as, you are allowed to claim tax benefit against home loan as well as HRA both. There could be several reasons for putting your owned home in rent such as requirement of a bigger home, change in office to a distant location from own home and similar change in preferences. You’ll be required to furnish the rental income from rented out property and such income will be taxable as per the applicable rate.You can claim HRA as your limit states. 

Income Tax Returns (ITR) filing: Things to Keep in Mind

Whatever your position may be, given there is a scrutiny by the Income-Tax department, you need to have valid reasons to support your filings. You need to make sure that when the I-T department sends you a notice to explain the reason for not occupying own home and claiming the HRA, you should be able to prove your position with good reason. If you are not able to satisfy their doubts you may be slapped with notices. 

By Adhil Shetty

(The author is CEO at Bankbazaar.com. The views expressed are personal.)