Claiming Tax Exemption On Both Home Loan And HRA?

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You are a software engineer, working for a highly reputed Private Company in Mumbai. You love your job and earn a good salary. You get HRA (House Rent Allowance), as part of your salary package. You stay in a rented apartment very close to your office. This helps you save time on traveling from your home to office. You have availed a home loan from a public sector bank and purchased an apartment in your home town of Delhi. Your wife and children stay in this apartment.
You’re confused…. It’s time to file your income tax returns. “Can you claim both HRA and home loan benefits?”

What is meant by HRA Tax Exemption?

You earn a basic salary of INR 40,000 a month. You get a HRA (House Rent Allowance) of INR 25,000 as part of your salary package. You are given this amount by your Company, towards staying/rental expenses. You pay a rent of INR 20,000 a month for your rented apartment in Mumbai.
The HRA (House Rent Allowance) given to you by your Company is subject to
Condition 1:
The actual rent you pay – 10 % * (Basic salary)
Condition 2:
50% of (Basic Salary) in case you reside in a Metro
And 40% of (Basic Salary) if you reside in any other city
Condition 3:
Actual HRA you receive from your employer.
You have to pay tax on the amount received from your employer, minus the amount which is the least among the above three conditions.
(A) You pay a rent of INR 20,000 on your apartment, out of which 10% of your basic pay of INR 40,000 is deducted.
INR 20,000 – INR 4,000 (10% of INR 40,000) = INR 16,000.
(B) 50% of your basic salary as you reside in a metro city.
50% of (INR 40,000) = INR 20,000
(C) Actual HRA you receive from your employer which is INR 25,000.
You have to pay tax on the amount received from your employer minus the amount which is the least among the above three conditions.
This is INR 25,000 (amount you receive from your employer as HRA) – INR 16,000 (amount which is the least among the above three conditions).
You have to pay a tax on INR 9,000.

Your situation

You stay in a rented apartment in Mumbai. You have availed a home loan and purchased an apartment in Delhi.
You get HRA (House Rent Allowance), as part of your salary package. You also stay in a rented apartment in Mumbai. You are entitled to an HRA exemption.
Your home for which you have availed a home loan is in Delhi. Your home is in a different city. You get an INR 1.5 Lakh tax deduction, under Section 80 C of the income tax act, on the principal component of your home loan. You get a tax deduction of INR 2 Lakhs under Section 24(b), on the interest you pay on your home loan. You are eligible for home loan benefits on the home loan you have availed.
You can claim both HRA and home loan benefits as your rented apartment is in Mumbai and the home you have purchased on loan, is in a different city of Delhi.
Your colleague, who works in the same department, stays in a rented apartment in Mumbai. He has also availed a home loan and purchased an apartment. Just like you he gets HRA (House Rent Allowance), as part of your salary package. The one difference. Your friend has availed a home loan and purchased an apartment on the outskirts of Mumbai. Can he claim both HRA and home loan benefits?
Your friend has purchased an apartment on loan on the outskirts of Mumbai. He is entitled to home loan benefits, under Section 80 C and Section 24 (b) of the income tax act.
Fine…You already know this, but a question still remains… Your friend gets HRA (House Rent Allowance) as part of his salary package. He also stays in a rented apartment in Mumbai. Is your friend entitled to HRA benefits as he is the owner of an apartment on the outskirts of Mumbai itself?
The surprising answer…Yes your friend can avail both HRA and home loan benefits, even though he stays in a rented apartment in Mumbai and has purchased a home on loan, in Mumbai itself. All he has to do is give a genuine reason. The apartment he has purchased o home loan on the Mumbai outskirts is too far from his workplace.
You have learnt something very important from this article. You can claim tax exemption on both HRA and home loan.
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