04 Feb, 2013 11:10 PM

Tax FAQs on HRA and Home loan

Can I take advantage, of tax benefits from Home Loan + HRA? Yes, certainly we can enjoy the tax benefits of home loan with HRA, as there is no relationship between claiming HRA tax exemption & claiming interest on home loan as both have independent provisions in Income Tax Act. This requires you to be staying in a rented house and having loan for a different home.
If you have taken a home loan and still living in a rented place then you will be entitled to claim tax benefit of both HRA as well as of Home loan?
As for claiming HRA exemption, one should be living in a rented accommodation for which he should be paying rent. Further, if the home is ready to live in during financial year tax benefits of home loan can be claimed. Once the construction of home is complete, the HRA benefit stops.
Following benefits can be claimed:

Tax benefit on principal repayment under Section 80C – Repayment of Housing Loan
Tax benefit on interest payment under Section 24(a) & (b).
HRA benefit.

Can I claim tax benefit of HRA if I stay in my own house?
No, one cannot enjoy the tax benefits of own house with HRA, as one cannot pay rent to oneself. Hence, whole of HRA received becomes taxable under “Income from Salary”.
Can I avail tax benefit of HRA if I am living in the house of my parents?
In such a case, one will be entitled for HRA tax exemption, but the owner of the house who may be the parents is assessable for the rental income derived from the house, provided such transaction should be genuine & not with an intention to evade tax.
Can I pay rent to my parents or spouse and avail HRA benefits?
You can pay rent to your parents and avail the benefits. But, your parents will then need to account for the same under ’Income from other sources’ and will be entitled to pay tax for the same. However, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny; so steer clear of these.
Can I avail tax benefit of HRA if I am living in the house of my spouse?
As no commercial transactions can occur between Husband & wife, so tax benefits of such cannot be availed.
Can I avail tax benefit of HRA + Home Loan, if my home is at considerable distance from work place?
Yes, one can claim tax benefits on home loan and HRA together & will be entitled to tax benefit on:
principal repayment under Section 80C
interest payment under Section 24
HRA benefit
However, it is necessary that some of our belongings must be at your home (the one you own) and you stay there on and off on weekends and holidays. Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns.
Can I avail tax benefit of HRA if I own a house in another city?
Yes, you will be availing tax benefits & will be entitled to HRA exemption if your house is in another city.
Can I avail tax benefit of HRA if I have a house ready for occupation but cannot reside in it?
In this case, the Income Tax Act permits the individual to claim HRA and home loan benefits which includes both principal and interest repaid on the home loan, if you are residing in a rented apartment in the same city where your house is located for genuine purpose. But, if your house is vacant then you still have to pay notional rent income.
How do I calculate my HRA?
To figure out how much HRA exemption you are eligible for, consider the following three values:

The actual rent allowance that the employer provides you as part of your salary
The amount of rent you pay for your house in excess of 10 per cent of your basic pay
50 per cent of your basic salary, when you reside in a metro city or 40 per cent if you reside in a non-metro city.

The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit