Paying rent whilst also having a home loan? Many working professionals find themselves in this situation—living in a rented property while owning a home elsewhere or having purchased property as an investment. The good news is you can legally claim both HRA exemption and home loan tax benefits simultaneously under specific conditions outlined in the Income Tax Act, maximising your tax savings when structured correctly.
Can You Legally Claim Both HRA and Home Loan Tax Benefits Together?
Yes, the Income Tax Act permits claiming both HRA exemption and home loan tax benefits simultaneously, provided you meet specific conditions. This dual benefit is particularly relevant for professionals working in different cities from where they own property.
The key requirement is that your rented residence and owned property must be in different locations. You cannot claim HRA for the same property where you’re availing home loan benefits. The Income Tax Department recognises that many individuals need to live away from their owned property due to work commitments.
What Conditions Must You Meet to Claim HRA With Home Loan Benefits?
Different City Requirement
Your rented accommodation and owned property must be in different cities. For instance, you can claim HRA for rent paid in Mumbai whilst claiming home loan benefits for property owned in Pune.
Genuine Residence Need
You must demonstrate genuine need for rented accommodation due to work requirements, not convenience. Employment location should necessitate living away from your owned property.
Property Usage Restriction
The owned property should not be self-occupied during the period you’re claiming HRA. If you rent out the property, income must be declared under ‘Income from House Property’.
Concurrent Ownership and Tenancy
You must simultaneously be a property owner (with active home loan) and a tenant (paying rent) during the financial year.
How Do HRA Exemption Calculations Work When You Have a Home Loan?
HRA exemption is calculated as the minimum of three components: actual HRA received from employer, 50% of basic salary (40% for non-metro cities), or actual rent paid minus 10% of basic salary.
Having a home loan doesn’t affect HRA calculation methodology. The exemptions operate independently under different sections of the Income Tax Act. Your home loan EMI payments don’t reduce HRA eligibility or calculation basis.
Which Home Loan Tax Benefits Can You Claim Alongside HRA?
Principal Repayment Deduction (Section 80C)
Claim up to ₹1.5 lakh annually on principal repayment amount, combined with other 80C investments like EPF, PPF, and life insurance premiums.
Interest Deduction (Section 24b)
Deduct up to ₹2 lakh annually on home loan interest for self-occupied property. If the property is rented out, claim the entire interest amount without any cap.
First-Time Buyer Additional Benefits (Section 80EE)
First-time homebuyers can claim additional ₹50,000 interest deduction on loans sanctioned between 2013-2017, subject to specific conditions.
Stamp Duty and Registration Deduction (Section 80C)
Include stamp duty and registration charges paid during purchase within the ₹1.5 lakh Section 80C limit.
What Documentation Do You Need for Both HRA and Home Loan Claims?
For HRA Claims
Rent receipts exceeding ₹1 lakh annually, rental agreements, landlord’s PAN details, and employer’s HRA certificate confirming payments received.
For Home Loan Claims
Loan sanction letter, annual interest certificate from lender, principal repayment statements, and property ownership documents like sale deed or allotment letter.
Additional Supporting Documents
Employment letters confirming work location necessity, property tax receipts, and utility bills demonstrating actual residence in rented accommodation.
Maximise Your Tax Savings Legally
You can legitimately claim both HRA exemption and home loan benefits when circumstances require living away from your owned property. Ensure proper documentation, maintain genuine residence patterns, and structure your claims according to Income Tax provisions for optimal tax savings.