Income Tax Benefit

DEDUCTION ON HRA AND HOUSE LOAN BENEFITS

A person may claim both tax benefits if the income tax criteria for both claims are met. The following are some of the claims that a homeowner might make:

  • Rent payment is exempt from the HRA.
  • Interest on house loans is deductible under Section 24
  • Principal repayment is deductible under Section 80C.

Deduction on repayment of principal amount of home loan

The EMI you pay is made up of two parts: principal repayment and interest payments. For self-occupied land, the sum repaid as principal component in the EMI may be claimed as a deduction under section 80C of the Income Tax Act, 1961.

If a taxpayer has a second home that is either vacant or occupied by your parents, that second home would be called a self-occupied residence. If you have a home loan on both homes, you are entitled for a deduction on the principal amount lent on both loans, up to a limit of Rs 1.5 lakh.

If you’ve rented out your second home, it’ll be referred to as ‘Let out property.’ Bear in mind that the deduction is available under section 80C in the case of rented land, and that the stamp duty and registration fees charged at the time of purchase can also be claimed under section 80C.

DEDUCTION ON HOUSE RENT ALLOWANCE

In the Union Budget 2021, the government extended the extra tax deduction of 1.5 lakh on interest incurred on housing loans for the buying of affordable homes for one year, which was announced on February 1, 2021. As a result, homeowners will now take advantage of a deduction of up to Rs. 3.5 lakh on a new loan until March 31, 2022.

This deduction is eligible under Section 80EEA, which lets you deduct interest on a house loan up to Rs 15 lakh. These home loan tax breaks are in addition to the existing Rs. 2 lakh Section 24 (B) exemption. Only houses with a stamped value of up to Rs. 45 lakh are eligible for these home loan tax exemptions. Benefits are available to homeowners with loans taken out until March 31, 2022. As a result, borrowers will be entitled to demand up to Rs 7 lakh in income tax deductions.

Those who take out home loans under the PMAY CLSS scheme are eligible for income tax benefits under Section 80EEA.

Sections of the Income Tax Act that include a deduction for home loans:

SECTION NATURE OF HOME LOAN MAXIMUM AMOUNT DEDUCTION
Section 80CTax deductions on the principal repaymentRs. 1.5 Lakh
Section 24Tax deductions on the interest amount payableRs 2 Lakh
Section 80EEFor first-time homeowners, an additional interest tax advantage of Rs. 50.000 is available.Rs. 50.000

Conditions for the benefits

  • The tax exemption is only available once the house is finished or you purchase a ready-to-move-in property.
  • They may save a significant amount of money each year by taking advantage of this tax exemption on house loans.
  • The claimed benefits would be reversed and credited to their salary if they sell the property within 5 years of taking ownership.

DEDUCTION ON HRA:

The House Rent Allowance (HRA) is a portion of a taxpayer’s salary that reduces his or her tax burden whether the taxpayer lives in rental housing. Using online HRA Exemption Calculators, you will figure out how much of your HRA would be tax-free. It is also possible to measure it manually.

HRA stands for House Rent Allowance, and it’s a common taxable part of a salary slip. That is the amount of money paid by an employer to an individual to cover the cost of living in rental housing. HRA not only helps you manage the costs of a rental home, but it also helps you save money on the overall taxable income.

The amount that should be deducted is the smallest of the following:

a. The HRA that was received;

b. 50% of [basic salary + DA] for those who live in metro cities (40 percent for those who live in non-metros); or

c. Actual rent charged less than 10% of minimum wage including DA.

ELIGIBILITY CRITERIA FOR HRA DEDUCTION

If the following eligibility requirements are met, a part of HRA may be asserted as a tax deduction under Section 10(13A) of the Income Tax Act:

  • You would be a salaried employee.
  • HRA should be a part of the salary structure.
  • You should live in a rented home.
  • You should be paying rent on the house, and the rent receipts should be in your name.

DEDUCTION UNDER SECTION 80GG OF THE INCOME-TAX ACT.  

HRA is usually included with the salary and can be claimed as a deduction. If a person does not collect HRA from its employer and pay rent on any furnished or unfurnished accommodation that the person uses as its primary residence, The foregoing is the minimum number of exemption that can be claimed under Section 80GG of the Income Tax Act:

  • 5,000 rupees a month (60,000 rupees per year); or 
  • 25% of your gross net income; or 
  • (Actual rent paid) – 10% of total income

CONCLUSION

Homeowners who pay off their loans and receive HRA as part of their salaries will take advantage of both the house property-related and taxable income tax incentives. It’s possible that you work in one city and rent in another, that your family lives in another city, and that you buy a home in the city where your family lives.

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