HRA & Housing Loan
vivek
(Querist) 30 July 2010
This query is : Resolved
HRA & Housing Loan
Can a govt. salaried Person take housing loan & get exemption in Pricipal & interest while he is getting HRA From govt.
Parthasarathi Loganathan
(Expert) 30 July 2010
If the property that is proposed to be acquired is located outside the agglomeration area of his employment, then principal repayment is exempted under Section 80cc. The interest so charged can be directly deducted from the total gross income
A V Vishal
(Expert) 30 July 2010
A number of salaried assesses take a home loan to acquire a residential property, but do not stay in that property for various reasons. They stay in rented premises for which they pay rent. If they are receiving a house rent allowance from their employer, a question arises-whether they can claim exemption of their HRA based on the rent actually paid by them, as well as the interest payable on the loan taken to acquire the owned property.
The exemption of HRA is covered under Section 10 (13A). Simply speaking, the only conditions for allowing the exemption of HRA are:
Rent must actually be paid by the assessee for the rented premises which he occupies
The rented premises must not be owned by him.
As long as the rented premises are not owned by the assessee, the exemption of HRA will be available up to the limits specified in the relevant rules. There is no mention here about any effect on the exemption because of ownership of any other property.
Interest is not a straight deduction allowed from the salary income. The deduction is actually allowed while calculating the income from house property; although the effect in the case of self occupied property, is the same as allowing it as direct deduction from salary income.
1) The point that we must remember is that income can also be negative or in other words, include a calculation of loss.
2) In the case of self-occupied property, the annual value is taken as nil and Interest is restricted to a maximum of Rs.1, 50, 000. Therefore, in the case of self occupied property; the result of calculation of income from house property will always be a loss to the extent of the interest payable on the home loan or Rs.1, 50, 000 (whichever is lower).
3) Where the property is given on rent, the annual value will be calculated based on the rental and the final income (or loss) from house property will be calculated as given above. Please note that in such a case, there is no restriction on the maximum amount of deduction available in respect of Interest.
4) Where the property is lying vacant and is neither rented out nor self-occupied, the rental that could have been derived (had it been rented out) has to be taken as the rental income in respect of such property and the calculation has to be done as in point above. Off course, the calculation of such a notional value has several practical difficulties. If similar property in the neighborhood has been given out on rent, which can serve as a good basis to calculate this figure. There are also a large number of case laws which have gone into the method of calculation of such notional value. You may need expert taxation advice to calculate this figure.
5) Income from house property is either taxed (if it is positive) or if it is a loss, it is allowed to be setoff against the income from other heads including salary (and hence the popular misconception that interest on home loans is allowed as a deduction from salary income as the impact, in the case of self occupied properties, is the same as a direct deduction of the interest from salary income).
6) There is nothing in the section that affects the exemption of HRA at all. Also, there are no conditions that restrict the availability of deduction of interest based on the assessee's stay in any other premises.
7) At most, some people might point to Section 23 (2) which is relevant for the purpose of allowing the annual value of a self-occupied property to be taken as nil as discussed in point 2 above. Let us examine these objections in some detail. If the discussion from here on is too technical, do not worry. There is no need for you to understand it in detail.
8) There are two circumstances under which the annual value of a self-occupied/vacant property is treated as nil.
Firstly, where the owned property is located in a city different from where the assessee works and because of this he is unable to occupy the owned premises and stays in a rented premises in the city in which he works-he will be able to take the annual value of such a owned property as nil even though, the owned property is not occupied by him for self residence.
Secondly, where the property is located in the same city as the rented premises-but is in his occupation and used for the purposes of his own residence. The question that arises is, how can the assessee claim to occupy the owned property for self residence; when he is also staying in the rented premises? In fact, Section 23(4) clearly recognizes the fact that more than one house property can be occupied and used by the assessee at the same time for the purposes of his own residence.
The next question is what constitutes the occupation of the owner for the purposes of his own residence? The only direct judgment on the issue, of what constitutes occupation of the[ owner for the purposes of his own residence; is by the Allahabad High Court in the case of CIT vs. Rani Kaniz Abid reported in [1972] Tax LR 587. From this judgment, one can conclude that as long as you retain the right to occupy the owned premises and go and reside there occasionally (say on weekends or during vacations - also means the property is in a habitable condition) and can show some proof for that (electricity bills showing consumption in line with your stay period, letters received at that address during that period, bills for items bought by you from neighborhood shops/hotels during the stay, copies of telephone bills showing (STD) calls made from a fixed line phone from that premises during the period of stay, etc.); you should not face any difficulties in treating the annual value of such properties as nil.
9) If the property is in the same city and has not been occupied by you at all, then there is an additional burden. In respect of such a property, you will need to do the calculation of income from house property based on a notional rent that would have been derived if you had actually rented out the owned premises and calculate the Income (or loss) from house property accordingly. See point 4 above. In this case also there is no restriction on the deductibility of the interest on home loan.
10) If the property is rented out, there is no issue at all. The income (or loss as the case maybe) from house property will be calculated as given above.
In all cases, the deductibility of interest paid on the home loan is not under doubt. Only the annual value could be different, based on where your case falls.
11. The principal amount repaid on all loans taken from specified entities such as banks/employer companies, to acquire/construct residential house property(ies) is allowed as a deduction under Section 80C; up to the overall limit of Rs. 1,00,000-mentioned in that section. This is not at all affected by the exemption of HRA in any manner.
V.T.Venkataram
(Expert) 30 July 2010
I concur with the views expressed by Mr. A V Vishal
Vineet
(Expert) 31 July 2010
Yes, HRA and rent from house property are taxed under different heads and there is no interlinking between them whatsoever.
Similarly, deduction u/s 80C for principal repayment is out of gross total income and puts no restriction as to the fact whether the person is in receipt of HRA or not.
For further explanation in respect of detailed view provided above visit following link:
http://www.apnaloan.com/home-loan-india/taxdeductionbenefitsforhlhra.html
