What is Housing Rent Allowance (HRA)? Is it better than getting a Home Loan?

Housing Rent Allowance (HRA) can help you reduce the cost of accommodation and claim tax deductions

Housing payments account for a considerable portion of a taxpayer's living expenses. Employees who pay income taxes may pay rent as well. In some cases, taxpayers who pay rent also pay back housing loans. Getting deductions for housing expenses can help taxpayers reduce their expenses and save more. Thankfully, the Income Tax Act has provisions for this. Let us understand this in detail.

What is the HRA allowance?

HRA, or House Rent Allowance, is a stipend paid by employers to their employees to help with the cost of renting a home. HRA in salary is a significant part of a person's remuneration package. The HRA covers both paid and self-employed workers and falls under Rule 2A of the Income Tax Rules and section 10 (13A) of the Income Tax Act.

Deductions under HRA

Salaried employees are entitled to an HRA exemption for the income tax they must pay each fiscal year. According to the Income Tax Act, the lowest of the three factors mentioned below are considered when calculating the housing rent allowance:

• The actual HRA collected by the employer is 50% or 40% of the base wage. It depends on whether the employee works in an urban or non-urban area.
• Rent is deducted from the basic pay by 10%.
• The base pay constitutes the basic salary, DA, and fixed-rate incentive on sales.

Can a home loan and HRA be claimed together?

In some cases, an HRA and a home loan can be combined to receive a tax break. They include:

• If the property you bought with a home loan is in a different city, and you must relocate due to a work change or another legitimate reason.
• If you took a home loan for a house still under construction, you must live in a rental until the construction is over and you receive ownership of the new property.
• If you have leased the property purchased with a home loan and are back in a rental space. It is permissible, but only for a good reason. It applies if you moved to a rented house because the new home had insufficient space for your family, or because of a location concern.

Remember, though, that these deductions should be claimed in authentic circumstances, not for tax evasion. So, if you have rented out your home and received cash as rent, or if you have taken a house on rent, it is best to avoid abusing the law's provisions to avoid paying your fair share of taxes to the government.

Even after knowing about the benefits one can receive under HRA, people still prefer getting a home loan to buy a house. The reason is clear. It is better to take a bank loan and have your own house rather than not having anything to show for the rent you are paying. If you have the right profile, you can easily get a home loan from IDFC FIRST Bank.

IDFC FIRST Bank offers home loans to eligible borrowers at the best interest rates. The rates offered are among the lowest in the market. Additionally, borrowers enjoy constant support through IDFC FIRST Bank’s intuitive and smart online banking app.

Disclaimer

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