A wise taxpayer files and pays taxes on time and knows numerous tax-saving strategies. To assist taxpayers in saving taxes, the Government of India offers a variety of Home Loan Deduction. However, few people are aware of them. Even for knowledgeable people, there is always the possibility of confusion owing to the vast amount of information accessible and the regular tax adjustments.
Read on to learn more about the HRA and interest on Home Loan Deduction.
HRA & Interest On Home Loan Deduction
As many questions arise and people generally as about can i claim hra and interest on housing loan? Let’s get into it in deep.
House Rent Allowance (HRA) and home loan interest rates are deductibles under the Income Tax Act. However, both deductions might be collected in the same fiscal year under rare circumstances. HRA is a stipend businesses provide employees to help them cover the costs of renting a home.
The Income Tax Act provides HRA exemption only if the person lives in a rented house. To qualify for tax relief, an employee must pay rent on the home they live in. Employees residing in their own homes or not paying rent are not eligible for HRA exemption.
House Rent Allowance
As an HRA deduction, the lowest of the three possible figures is permitted:
- Actual HRA receives 50% of pay if you live in a metropolis
- 40% if you live in a non-metropolis
- Yearly rent minus 10% of total annual salary
The HRA benefit is only accessible for monthly payments, not for the entire year.
- You cannot be the property owner for which you are claiming the HRA.
- You must have spent money on house rent.
- You must be a paid employee who receives HRA from your company.
Interest in a Home Loan Deduction
If you have a home loan, you can deduct the interest paid from your taxes:
Home loan interest rate is calculated according to section 24 (B) of the Income Tax Law of 1961, and The principal is repaid in accordance with section 80C of the same law. The acquisition or building of residential housing qualifies for this tax credit. To qualify for this deduction, however, you must meet a few requirements.
You ought to be the property’s legitimate owner
You are eligible for a principal repayment deduction of up to Rs 1.5 lakh. However, you shouldn’t sell the residence within five years of occupancy to receive this benefit. The exemption would be revoked and placed back into your tax liability in the year of sales if you sold the property before five years.
A deduction for interest payments of up to Rs 2 lakh is permitted if the home is self-occupied. But you can only make the deduction once the house construction is finished.
Could you utilize both?
Even if both homes are located in the same city, there are no limits for claiming HRA and interest on a Home Loan Deduction simultaneously. There should, however, be sufficient justification for vacating the home you purchased. These claims are frequently carefully examined by Income Tax officers. If unsatisfied, they may reject a portion of the claim, particularly if the sum is significantly greater. In that case you need a Accountants & Financial Advisors.
To claim both, you must have all the supporting documentation, such as a sales deed and a completion certificate, to support your claim if it is questioned.
To address the issue, you can combine both tax benefits in the same year and greatly lower your taxable income. However, you must keep accurate records and provide the necessary paperwork when requested.
If a person owns a home but rents their residence, they are still eligible for the HRA exemption and the interest deduction on their Home Loan Deduction. Only if the home one owns and the home one resides in are in separate areas, and there is a reasonable cause for not living in one’s own home, are both tax deductions permitted.
You can deduct HRA and Home Loan Deduction if your employment location is in a different city or is too far from your home. However, it should be noted that if the provided information is scrutinized, acceptable justifications should be provided to the employer or the Income Tax office.