Can you claim both HRA, home loan deduction if you rent out first home?

Tax benefits on let out property

Many salaried individuals often face a tax dilemma. Can they continue to claim house rent allowance (HRA) if they buy a house on loan but do not live in it? If that house is rented out, are for full home loan interest deduction under Section 24(b)? Ask Wallet Wise expert clears confusion about the income-tax rules that apply in such a situation.

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I do not own a house and live in a rented accommodation for which I claim HRA. I want to buy a house by taking a housing loan but plan to rent the property. Since the new house will be a "let-out" property, can I claim the full interest as deduction for income tax purposes? Can I continue to claim HRA for the house that I live in?

Expert advice: According to tax laws, the deduction for interest under Section 24(b) on a loan taken for the purchase or construction of a house is restricted to Rs 2 lakh if the house is self-occupied.

If the house is let out, the entire interest payable on the loan can be claimed as a deduction under Section 24(b), subject to the restriction on set-off of loss under the head “income from house property” against other income, which is capped at Rs 2 lakh per financial year. The remaining loss, if any, can be carried forward for up to eight assessment years for set-off against future income from house property. These provisions apply only if you choose the old tax regime.

The availability of tax benefits on a home loan is not dependent on whether it is your first or second house. It depends on whether the property is self-occupied or let out/deemed to be let out.

If you opt for the new tax regime, no deduction for interest is allowed for a self-occupied property. In the case of a let-out property, interest paid can be claimed only to the extent of taxable rent, as the loss under the head “income from house property” cannot be set off against other income.

As far as tax benefits for HRA are concerned, as long as you are paying rent for the accommodation you occupy and that accommodation is not owned by you, you can continue to claim HRA even if you own another residential property. Since you plan to let out your house, there should be no issue in continuing to claim HRA. However, note that HRA benefits are available only under the old tax regime.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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