Under section 10 (13A) of the I-T Act read with Rule 2A, HRA exemption is limited to the lowest among the three components: Rent paid minus 10% of salary (here salary denotes basic salary plus dearness allowance); 50% of salary if the house is situated in the four metros or 40% of salary in other cities; actual HRA received.
CTC states that the benefit of the exemption available in the case of HRA must be extended to the repayment on home loans, takenfor acquisition of a first house by an employee. However, double deduction of the same EMI payment under various sections would not be permitted. This suggestion would also boost housing projects and incentivise property purchases.
Tax experts state that the tax benefits available against home loans are relatively restrictive in scope.
“A deduction of Rs 1. 5 lakh can be claimed under section 80C for the repayment of home loan instalments taken from authorised channels (say a bank). However, this limit is inclusive of all investments and expenditures eligible for deductions under this section, such as contributions to Public Provident Fund (PPF) and Employees’ Provident Fund (EPF). Often, salaried employees exhaust the Rs 1. 5-lakh cap with EPF and other investment schemes,” points outHinesh R Doshi, chartered accountant and former CTC president.
Further, if the house is sold within five years of purchase, all home loan repayment deductions availed earlier under section 80C get reversed in the year of sale.
Tax experts call for a relook on various issues. If a house is self-occupied, themaximum home loan interest allowed as a deduction under the head ‘income from house property’ is Rs 2 lakh. If a house is under construction, interest is allowed in five equal instalments only after construction. If a housing project is delayed beyond five years, the buyer is penalised as the interest deduction is limited to just Rs 30,000.
It should be noted that HRA and tax breaks for home loan interest and repayment are not available if the taxpayer opts for the new personal I-T regime.