Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee â€“ whether it is owned by you or taken on rent. Conditions for claiming R
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee – whether it is owned by you or taken on rent.Conditions for claiming tax benefits on house rent allowance
The tax benefit on house rent allowance (HRA) is only available to a person, who receives HRA from his employer and is not available to a self-employed person. To avail of this benefit, the employee should have incurred the expenditure on rent, with respect to a residential house property occupied by him/her. The benefit of HRA is not available on rent paid for a residential house that is occupied by any other person, irrespective of whether he is dependent on the assessee or not. It is also not available, in cases where the accommodation is either partly or fully owned by the assessee himself.
So, if an employee lets out the property to his employer and the employer in turn, allots the same to the employee and recovers some rent on this account, the HRA benefit cannot be claimed. Likewise, if the employee is a joint owner of a property and pays some rent to the other joint owner/s of the property, the HRA benefits on such payment cannot be claimed.
According to rule 2A of the income tax rules, the benefits of HRA shall be restricted to the lowest of the following three amounts:
(a) HRA actually received.
(b) Excess of rent paid over 10% of basic salary.
(c) 50% of basic salary in case the employees is in any of the four metro cities, or 40% in case he resides in any other place.
The law does not stipulate that HRA benefit cannot be claimed, if the tax payer owns a house and is already claiming tax benefits with respect to a housing loan.Conditions for claiming tax benefits on home loans
The main condition, for the allowance of the deduction on the principal and interest components of a home loan, under Section 80 C and Section 24(b), is that the person should be the owner of the house property. Tax benefits under Section 80 C, are only available for home loans taken from specified persons, for a residential house. Interest benefits are available on residential and commercial properties and on money borrowed from banks or from anyone else. Moreover, the interest on money borrowed for a let-out property is fully deductible. For a self-occupied house property, the benefit on interest is restricted to Rs two lakhs per year.
See also: Home loans: A guide to claiming tax benefitsClaiming HRA as well as home loan benefits
The laws allows a tax payer to have more than one house property. However, he has to opt for only one such property as self-occupied and offer notional rent, on the other properties for tax. By the same legal provision, it can be inferred that in addition to the rented house occupied by the tax payer, he can have one more house property as self-occupied. If the house property owned by the tax payer is in a city other than his place of work, there would not be any problem. However, if the property is in the city where the rented property is situated, it may be logically difficult to establish that the tax payer is occupying both the houses.
(The author is a taxation and home finance expert, with 30 years’ experience)