As a person who is living on a rented apartment, you can claim tax deduction both on your home loan interest and house rent allowance or HRA. The EMI or equated monthly installment for your home loan involves a combination of the principal repayment and the interest on outstanding loan. These components, namely HRA, the principal repayment and the interest payment can together be claimed as an exemption under the separate sections of Income tax Act. Nevertheless, there are some specific conditions that are needed to be fulfilled before you can claim such a tax exemption. So let’s have a closer look at these conditions.

The income tax regulations allow the tax payers in India to claim tax exemptions against some expenses and investments that an assessee has incurred from the gross income. Although the individual tax payer can claim exemption for the HRA under the section 10(13A) of Income tax Act, the principal repayment of the home loan and the interest on that amount can be claimed by the person under the sections 80C and 24B. The HRA amount can be claimed by the tax payer as the lowest of the actual HRA that is received from an employer or about 50% of salary for the employees that are living in the metro cities. This amount is about 40% for people living in the non-metro cities or the actual rent amount minus 10% of the salary (basic + turnover-based commission + dearness allowance). The principal repayment exemption amount can be claimed by the individual up to threshold limit as specified under the section 80C. This amount stands at Rs.1.5 lakh, or actual principal repaid amount, whichever is less.

Just like that, a person can claim the interest repayment up to threshold limit as specified under the section 24B, which amounts to Rs. 2 lakh. This is applicable if the property is self-occupied. Alternately, the interest repayment can also depend on the actual interest that is paid on the home loan amount, whichever is lesser. If the house that is owned by the individual is rented out to another person, the owner of the house can claim the whole interest paid on home loan as the deduction.

A person can put forward a claim for HRA exemption in case he or she is living on rent, or claim a deduction for the repayment of the home loan. While it is possible for a single individual to claim both, it is necessary that the individual fulfills the requisite conditions perfectly. If a person has purchased a property by taking home loan and chooses to live in it, he or she cannot claim HRA but can claim the tax benefits on the principal as well as the interest. However, if the person has purchased a property on a home loan but chooses to reside in another property on rent, then he or she can claim tax benefits for both. However, if both of these houses are located within the same city like Independent villas in Bangalore, the individual should have a proper reason for not residing in the property that he or she owns. This can be due to a number of factors, such as the house is located at a long distance from the workplace or that commutation is not always so easy from the site of the other house. If such is the case, the individual needs to present such explanations to the employer or income tax authority if they choose to look through the details offered by the individual.

It is to be remembered here that intentional wrong reporting of one’s income and expenses is a punishable offense. People who choose to claim HRA deductions by paying the rent for family members while at the same time avail tax deductions on the principal payments and the home loan interest are usually seen as intentional tax evaders. The tax regulation authorities may want to go through the transaction records of such individuals to see if there are any discrepancies.