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Thursday, December 10, 2015

Claiming Tax benefits on both HRA and Interest on Home Loan Deduction

 
 For claiming HRA you must live on rent. But does the Income Tax Act allow you to claim HRA and also get a deduction for Interest on Home Loan? This has put many a tax payers in a quandary.
 
 

For claiming HRA you must live on rent. But does the Income Tax Act allow you to claim HRA and also get a deduction for Interest on Home Loan? This has put many a tax payers in a quandary. In some situations, you may live on rent in one house and you are not able to occupy your own house for which you are repaying a home loan.

Let's take a look some examples of these situations and see how one can take tax benefit.

You work in a city and live on rent and your bought a house in your home town – Our jobs take us places, and its difficult sometimes to move families or parents along. Look at the following example – Arjun works in Gurgaon, but his wife and kids live in Sonepat. While Arjun lives on rent he recently bought a house in Sonepat on a loan, he plans to settle there for good later on. In this case, Arjun can claim HRA for rent he pays for the house in Gurgaon, at the same time he can claim interest deduction up to Rs 2,00,000 on the home loan up for the house he purchased in his name in Sonepat.

You live in a rented accommodation since your house is too small for your needs – Raghav lives in a rented house in Noida since his son's school and his wife's office are in Noida, his own house on the outskirts of Delhi is smaller and is lying vacant. He is paying interest on loan on his own house. Raghav will be allowed to claim HRA as well as get tax benefits on the home loan.

You live in a rented house and your own house is also let out – Neha recently purchased a flat in Gurgaon, though she lives and works in Bangalore. She has no plans of returning to Gurgaon in the next five years so she gives that flat on rent. She lives on rent in Bangalore. Neha can claim HRA and her entire interest on the home loan for the Gurgaon flat shall be exempt from tax, since it is rented out. She is able to save significant tax.

It is worthwhile to note that deduction on Interest when you own one house property which is not let out is limited to Rs 2,00,000. But for a property which is let out the entire interest can be claimed as a deduction. Principal repayments can also be claimed under section 80C, the overall limit for Section 80C for FY 2014-15 is Rs 1,50,000.

Some smart tax planning can save you money! Remember that the pre-condition for claiming HRA is living in a rented place and paying rent to your landlord. The tax department will not allow you to claim HRA if you live in a house you own.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

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4.DSP BlackRock Tax Saver Fund

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7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

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10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

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