Until and unless construction of a purchased residential property is completed, the homebuyer continues to stay in the rented accommodation till he can avail the benefit of house rent allowance. However, in such situations now, income tax laws say that the EMIs can also be availed by him.
There are scenarios where a person can also avail HRA when he owns a house for which he pays monthly installments and earns monthly rent from it by renting it out. But this advantage is usually availed when the place of job/employment is not nearby the owned property.
Many people face this situation while some people take up to unconscionable ways just to avail HRA. Now the next guest in such people’s home can be the taxman if they are not ready with some honest and authenticated explanations.
If we have a look at the advantages offered by the income tax laws we’ll see that certain exemptions are available regarding the HRA if the prescribed conditions are fulfilled. If the repayments are done for housing loans then also deductions are made available. If the repayment is done for the principal amount then the deduction will be allowed from gross total income while if the payment is for the interest, it will be deductible under the head income from house property. This gives us the overall total gross income. Going by the new income tax laws, these interest deductions are restricted at 2 lakhs for the property which is self-accommodated while laying no restrictions on the rented property.
But according to the recent Finance bill proposal, the loss from the house property shall be set off with any other income till 2 lakhs. And the amount left (if any) from being absorbed will be adjusted in future years by carrying it forward. This proposal of finance bill is expected to majorly affect the whole process of setting off and carrying forward pertaining to the interest income.
An essential aspect which is needed to be looked at is that the deductions for loan repayment is only allowed after the completion of the property. Repayment at an early stage (pre-construction stage) will result in total loss. But this is not applicable on the payment of interest during the pre-construction stage as it will be allowed as a deduction in five installments, once the property is constructed or possession is acquired.
Being able to claim the deductions for the rent and EMI at the same time will only rarely be beneficial in terms of taxes for the taxpayer.