In case the property is self-occupied, the rental income is treated as nil
I have a home loan against a house in Madurai against which I was claiming principle and interest tax benefit over the past two years. Now, I am posted in Coimbatore and have taken a rented accommodation. The house in Madurai is locked and not let out. Is it possible to claim both tax benefit of HRA and housing loan interest and principle repayment?
Saravana Krishnan, Coimbatore
You need to know a few things – the rent received or receivable with respect to any property owned by you is taxable in your hands net of municipal taxes. From this value, a 30 per cent standard deduction is allowed as well as the amount of interest payable on the loan taken to acquire that property is allowed as a deduction and the balance amount is chargeable to tax (if it is a positive figure) or is adjusted against other heads of income (if it is a negative figure due to interest deduction). In case the property is self-occupied, the rental income is treated as nil and hence the home loan interest becomes the only deduction and the resultant loss is allowed to be set off against your salary income.
To answer your specific query: there is no linkage at all between claiming exemption for HRA in respect of rent paid for a rented house and claiming a deduction for home loan interest. It does not matter if the owned property and the property rented out are in the same building. You will still be eligible to claim both – the exemption for HRA as well as the deduction of home loan interest. The only thing that can change is whether your owned house (Madurai) in your case will be treated as a self-occupied house or as a non-self occupied house. Here if you are not able to use the house because you have moved cities owing to change in employment, then the rental value of the Madurai house will be treated as nil.
However, if the owned house was situated in the same building and was still locked and not used, then the deemed rental would need to have been taken for that house as if it had been rented out. In your case, you can easily claim it as nil because of the facts outlined by you. In any case I still wanted to emphasise that the only thing that would have changed in those circumstances is that 70 per cent of the rental value would have been taxable in that case, but the interest would have remained deductible.