t’s tax season time and planning your taxes must be your top priority these days. And if you own a house for which you have been re-paying your loans- many of us also stay on rent while our own house lies vacant in, say, our home town- then your housing becomes an integral part of your tax-planning. It becomes a financial burden, sometimes, when our monthly outgo (due to home loans and rent) becomes a strain on our budgets.
Here’s what you should do, irrespective of whether you are single or married:
When to claim HRA?
First, the basics. You can only claim house rent allowance (HRA) tax benefit (exemption under section 10(13A) of the Income-tax Act, 1961) if you receive an allowance from your employer for meeting rental expenditure. “Further, in order to be eligible to claim the exemption, the taxpayer needs to actually incur the expenditure on payment of rent for a residential accommodation occupied by him or her. The taxpayer should not own the residence for which she is paying rent”, Amarpal Chadha, Tax Partner & India Mobility Leader, EY India. You also need to submit your rent receipts, permanent account number (PAN) of the landlord (if the yearly rent exceeds Rs.1 lakh) to your employer.
Coming to the tax deduction benefit for repayment of your housing loan (interest component) under Section 24, if your own home- for which you are re-paying a home loan- is in another city and you work and live in another, you can still claim a tax deduction for home loan interest (up to Rs.2 lakh per annum). Bear in mind that this house should be vacant and you should not be earning any income from it.
Home loan and rent benefits, together
Can one claim home loan along with HRA in a financial year? Yes, you can. Chadha says: “The fact that HRA exemption is available when the taxpayer actually occupies a rented accommodation and housing loan interest deduction is available for a self-occupied house property, makes both of these benefits mutually exclusive.”
Splitting benefits for married couples
Noida-based couple Ashish Gupta, 29 and his wife Kavita tied the knot recently and had bought one bedroom-hall-kitchen home in Noida worth Rs.30 lakh. His 30-year home loan kicked in and the couple now pays an EMI of about Rs.18,000 a month. Soon enough, the couple got jobs in Gurugram and they had to move. “Commuting to Gurugram from Noida became a big problem for us. So, we thought of shifting to a rented apartment in Gurugram; our monthly rent is about Rs.25,000”, says Ashish. The question is: can both Ashish and Kavita claim HRA benefits as well as for home loan repayments?
Every individual is considered a separate taxpayer as per India tax laws. Taranpreet, a chartered accountant and co-founder of TASS Advisors Partner, a chartered accountancy firm, told Moneycontrol that both husband and wife can claim the EMI tax benefits based on the contribution made by them towards housing loan installments. But the EMI tax benefit can only be had, either separately or jointly in their respective tax filings, up to the installment amount (Rs.18,000 in the case of Ashish and his wife). In simple words, Ashish and Kavita cannot each claim a tax deduction benefit of Rs.18,000. “Secondly, tax benefit can only be claimed on such property on which construction has been completed. For the property which is under construction, the tax benefit is not available,” he said.
The same goes for HRA exemption where you get a relief towards the rent you pay. Here too, a couple can claim the deductions either proportionately or by just one person, following these parameters, which are:
-| The actual HRA received from the employer-| Rent minus 10% of the salary
The minimum amount calculated out of these three rulings will get tax exempt. Also make sure, you are availing the tax benefit for the period in which the rented house is occupied.
How should a couple separately claim these tax benefits? Taranpreet said that there is no specific ratio to distribute the rent or EMI in equal proportion. If one person’s salary is more, then that person should claim a large proportion of rent/EMI. “The distribution should be done in such manner as to avail maximum tax-benefit,” he said.
What should you do?
A couple can choose to split the rent or housing loan installment in any proportion depending on the salary structure to reduce the burden of the tax. A couple can share the amount equally or in a certain ratio that depends on your tax liabilities and income. It’s a good idea to claim the deduction in the hands of the spouse whose income falls in the higher tax slab rather than in the case of the spouse whose income falls in a lower slab.