Taxpayers are often confused about claiming HRA and home loan deductions simultaneously. A taxpayer has asked a question about this. He currently lives in a rented house. However, he wants to buy a house by taking out a home loan.
He will rent out that house. His question is, can he claim HRA on the house he lives in and the home loan interest deduction on the house he buys? Moneycontrol asked a tax expert for the answer.
Section 24(B) of the Income Tax Act
Tax experts said that individuals can claim a deduction on the interest on a home loan they take out to purchase or construct a home under Section 24B of the Income Tax Act. The condition is that the home must be used for personal residence. If this is true, the maximum interest deduction allowed per financial year is up to ₹2 lakh.
Deduction on rented house
He said that if a house purchased with a home loan is rented out, a deduction can be claimed under Section 24(b). The condition is that the loss must be set off against other income under the head “Income from house property,” subject to a limit of Rs 2 lakh per financial year. The remaining loss (if any) can be carried forward to the next eight assessment years to be set off against future income from house property. This provision is only applicable to taxpayers using the old tax regime.
Conditions for availing tax benefits on home
Experts said that the tax benefit on home loans does not depend on whether you purchase your first or second home. It depends on whether the property is being used for personal residence or rented out. If you use the new income tax regime, no deduction can be claimed on home loan interest on a home used for personal residence. If the home is rented out, the deduction on home loan interest can be claimed only to the extent of the taxable rent, as losses under the head ‘income from house property’ cannot be set off against other income.
Deduction on HRA only in old regime
As for the tax benefit on HRA, as long as you live in a rented home and pay rent, you can claim HRA even if you don’t own a second home. Since, in the case of the question above, you plan to rent out the property, there won’t be any problems claiming HRA. However, it’s important to note that HRA deductions are only allowed under the old income tax regime.
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