While many employees claim income tax deductions either on HRA or on home loan repayment, there are few who claim both these deductions together. For a salaried person, who has very limited tax saving avenues, the tax deduction benefits available through HRA and home loan repayment become critical as it helps in saving a significant amount of tax. If you are eligible to claim these deductions simultaneously but if you are not utilizing them fully, then you are losing your hard-earned money which you could have easily saved. Here are three ways you can claim HRA and home loan tax deductions together.

SCENARIO 1: OWNED HOUSE IN ONE CITY BUT LIVING ON RENT IN A DIFFERENT CITY

An increasing number of people now own houses in one city but live on rent in a different city. Can such a person claim income tax benefit for both HRA and home loan repayment? "Yes, if you are living on rent in your city of job and own house in another city then income tax benefit can be claimed on HRA as well as Home loan interest," says Sudhir Kaushik, Co-Founder & CEO, TaxSpanner.Com.

This is the simplest way of claiming both HRA and home loan deductions together. First, you must comply with the conditions related to HRA for which you must be an employed person and get HRA as part of your salary. "As per Section 10(13A) of the Income-tax Act, 1961 (‘Income-tax Act’), exemption from House Rent Allowance (HRA) is available if the twin conditions are fulfilled, i.e., expenditure actually incurred for payment of rent for residential accommodation and such residential accommodation is occupied by the individual," says Sonu Iyer, Tax partner & people advisory services leader, EY India.

Moreover, you should also comply with the conditions related to home loan deductions. As per Section 23(2) of the Income-tax Act read with Section 24(b), interest on a housing loan may be claimed as a deduction for self-occupied house property up to Rs.2 lakh per financial year. “Such deduction is available only if the house property is occupied by an individual or cannot actually be occupied by the individual owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that ‘other place’ in a building not belonging to him. In other words, it is vacant due to an individual’s employment at another place," explains Iyer.

Though the owned property might be vacant or occupied by other family members you can still treat it as a self-occupied house. "The law permits an individual to claim a deduction for interest on housing loan for a property which cannot be occupied by the individual due to his employment, business or profession carried on at any other place," says Iyer.

So, if you are living in a different city due to occupation or employment you are eligible to claim both the deductions simultaneously. "In the above example, as the individual cannot occupy his own property due to his employment in a different city, he may claim a deduction for both HRA (for a rented property) and interest on housing loan for self-occupied property," says Iyer. You can also claim up to Rs.1.5 lakh toward the principal repayment of a home loan on a self-occupied property.

SCENARIO 2: OWNING A HOUSE BUT LIVING ON RENT IN SAME CITY

Cities have become bigger, and for many it may take several hours for a one-way commute to the workplace. Many people prefer to move their accommodation closer to their workplace to reduce their commuting hours. So can you claim both deductions while living in the same city?

“In special circumstances, if an assessee can prove that the owned property is quite far from the place of work, and hence the rented accommodation has been availed, then HRA tax exemption and home loan benefits both can be availed,” says Deepak Jain, Chief Executive, TaxManager.in, a tax e-filing and compliance management portal.

You can only claim HRA if it is part of your salary. "For claiming the benefit of HRA under Section 10(13A), the person should not own such property and rent is actually paid by the person," says Dr. Suresh Surana, Founder, RSM India.

Though the owned property may still be considered a self-acquired property making you eligible to claim deduction on both principal and interest repayment of a home loan. “Section 23(2) of the IT Act lists down the circumstances under which property can be considered as SOPs (Self Occupied Property) by an assessee. The conditions are: Where the property consists of a house or part of a house which— (a)is in the occupation of the owner for the purposes of his own residence; or (b)cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him. Further, the property should not actually be let out at any time during the year," says Surana, Founder, RSM India.

However, other reasons for living in the same city may not help in claiming the owned property as self-occupied and getting an HRA tax deduction. "The provisions do not explicitly provide explanation/clarification/comment on the definition of “other place” with regards to the vicinity/area/city/state of the property to be situated. Further, on a plain reading of the regulations, it can be understood that they do not extend the benefit of considering a property as SOP in case the person cannot actually reside in a property owned by himself due to proximity of children’s school," says Surana.

So, if the reason is related to a place of employment, claiming both deductions together will not be difficult. "As per the Income-tax Act, an individual may claim a deduction for interest on housing loan for a property which cannot be occupied by the individual due to his employment, business or profession carried on at any other place," says Iyer. "However, such an individual should be careful and maintain substantive evidence to prove that he has to reside at any other place due to his employment," adds Iyer.

SCENARIO 3: IF ONE LETS OUT HIS OWNED HOUSE AND LIVES IN THE SAME CITY ON RENT

Except for proximity to the workplace, there could be many other compelling reasons for a person not to live in his owned house but in a rented accommodation. “These reasons can be like the owned house is too small for the family or children’s school is near the rented accommodation,” says Jain. Can one claim both deductions in such a case?

Yes, but it is not possible with a self-occupied house as this can happen only when you give your property on rent. “If a person lets out his own property and lives in the same city or any other city for any reason including proximity to the children’s school or job location etc., the person shall be eligible to claim benefits of HRA as well as Home loan repayment,” says Surana. However, in the case of let out property only deduction on interest payment is available.

If you have genuine reasons, there is no bar on claiming both deductions together. “For an assessee who lets out his owned house and due to bona fide reasons lives in the same city on rent, one can claim tax benefit for home loan repayment on the owned property which is let out and also can claim the HRA on the property in which he resides.” Says Jain.

However, the reason for living on rent in the same city should be convincing. "The genuine need to give your house on rent and living on rent might need to justify the income tax department. There is a chance of disallowance because no prescribed rules are given in the act," says Kaushik.

Though you may have to forgo the principal repayment related deduction, you would be able to get a maximum deduction of Rs. 2 lakh on the interest payment of your home loan. For many people, it may work out well as they may not need principal repayment benefit at all because it may be exhausted through other avenues like EPF contribution, NPS contribution, children’s education fee, life insurance and investments like ELSS, PPF, ELSS, NSC and so on. If your annual interest payment is much higher than Rs. 2 lakh then there are chances that your net loss from income from house property is above Rs. 2 lakh giving you full deduction benefit despite rental income.