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Taxpayers can claim HRA exemption under section 10(13A) of the Income-tax Act, 1961. For the purpose of determining the exemption amount, lowest of the following three provisions is considered:
HRA received from the employer in actuals
50% of salary, if the taxpayer resides in a metro city and 40% in case the taxpayer resides in a non-metro city
Actual rent paid less 10% of salary
Tax benefits on a home loan are calculated in a different manner. Under section 24(B) of the Income Tax Act, individuals can claim tax deduction on the interest portion of the loan repayment up to the threshold limit of Rs. 2 lakhs. Tax benefits can also be claimed on the principal repayment portion under Section 80C of the Income Tax Act up to a maximum limit of Rs. 1.5 lakhs or the actual principal repaid - whichever is lower.
If the taxpayer has bought a house on loan but lives in another home, for which he or she pays rent, the individual can claim tax benefits for HRA and on the home loan. The only condition is that both the rented and self-occupied properties should be in different cities.
If the taxpayer takes a home loan to buy a house that is still under construction, the individual can claim HRA benefits. Once the property is fully constructed, the individual can claim tax benefits associated with the interest on home loan paid.
If the taxpayer buys a house but cannot stay in that property since he or she is deputed in another city, the individual can claim both the deductions under the Income Tax Act.
If a taxpayer buys a property, but rather than staying in it, he or she rents it out and lives on rent as well, then the individual can claim both HRA exemption and interest on home loan deduction. The individual, however, cannot claim the tax benefits for the principal amount repayment under Section 80C.
HRA cannot be greater than 50% of the basic salary.
The employee cannot make a claim for the full rental amount that he or she is paying.
If the employee is living with his or her parents, the individual can pay them rent and collect receipts for HRA claim.
The employee needs to present the PAN card of his or her landlord if the rent exceeds Rs.1 lakh annually.
In case the landlord is an NRI, the taxpayer should pay the rent after deducting 30% TDS.
Loan should be availed after 1st April, 1999 for property purchase or construction.
The taxpayer can claim benefits for repairs or reconstruction work of an existing property.
Processing and pre-payment charges shall be regarded as interest payment.
The purchase or construction needs to be completed within 3 years from the end of the financial year in which the loan was availed.
The individual can claim tax benefits for loans taken from friends or family.
Can anybody claim HRA?
No, house rent allowance can only be claimed by taxpayers residing in rented accommodations. Individuals living in their own houses cannot claim HRA.
What are the tax benefits on a home loan for a house property under construction?
Until the property is constructed and a certificate is issued stating the same, no tax benefits can be claimed on the home loan. After completion, however, the taxpayer can claim deductions on the interest on home loan paid (for the under-construction period) in 5 equal instalments from the year in which the construction is completed.
How to claim HRA if the landlord does not have a PAN card?
If the employee is paying a rent exceeding Rs. 1 lakh, he or she must present a copy of the landlord's PAN card. The PAN card copy serves as a proof while filing the HRA claim. In case the landlord does not have a PAN card, a declaration, which includes details like landlord's name, address, rent amount and the period of accommodation, must be provided.
What are the documents required for claiming HRA exemption?
To apply for HRA exemption, the taxpayer needs to produce the rent receipts. If the rent is more than Rs. 1 lakh annually, either the landlord's PAN card or a written consent (stating that the PAN is not available) from the landlord is necessary.
If an individual fails to pay EMIs, will he or she be able to claim benefits on the interest?
Tax benefits under Section 24(b) on the interest on home loan can only be claimed when the EMI payments are made. If the taxpayer fails to pay the EMIs, he or she cannot claim tax benefits for the same.
Does HRA include electricity and maintenance charges?
No, HRA is paid for rent only. The taxpayer cannot claim the maintenance fee and electricity charges as HRA.
Can tax benefits be claimed in case of loans taken from friends?
Yes, an individual can claim a deduction under Section 24(B) for the interest on home loans. However, it must be noted that the friend who is lending will be liable to pay tax on the interest earned from the loan.
Is it possible to claim HRA exemption for rent paid to parents?
Yes, HRA exemption can be claimed for rent paid to parents, provided the property is owned by the parents. In such a case, the parents will have to show the rent as income from house property. However, if the individual is staying with his or her parents in a rented accommodation and they are paying the rent, the individual cannot claim any HRA deduction.
What must an individual do if HRA is not part of the salary?
In case a taxpayer does not receive HRA from his or her employer, and makes payments towards rent for any accommodation, the individual can claim deduction under Section 80GG towards the rent that is paid. The individual will need to file form 10BA with details of the rent payment.
The lowest of the three will be considered for determining the deduction under Section 80GG:
Rs. 5,000 per month
25% of the total income (this will not include long-term & short-term capital gains and other deductions under Section 80C to 80U)
Actual rent paid minus 10% of income