Home Rent Allowance Vs Home Loan EMI - Which Is a Better Tax Saving Option? - Home Loan Stories

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04 JUNE, 2021

Do you prefer owning a home and repaying the loan amount over the specified tenure to living in a rented accommodation and claiming the rent? As a tax-saving option, which one should you really opt for? Below, learn about the tax benefits for home rent allowance vs home loan EMI below.

Tax Benefits under Home Rent Allowance

Home Rent Allowance or HRA is a component of a salaried individual’s income. Such an individuals who lives in a rented accommodation can claim HRA exemption under Section 10(13A) of the Income Tax Act. In case you live in your own house, the HRA amount that your employer pays is taxable. The amount, which you can claim as a tax benefit, is estimated with the help of three factors.

HRA calculation:

The minimum amount out of the below-mentioned three pointers is the sum you can claim as an exemption:

The actual rent paid over 10% of your annual salary
The actual amount of HRA paid to you
50% of your basic salary (for a metropolitan city) or 40% of your basic salary (for a non-metropolitan city)

Tax Benefits on Home Loan EMI

With home loans, you can fulfil your life goal of purchasing a house and avail tax benefits on your monthly EMI. As the home loan EMI consists of the principal and interest component, you can claim deduction on both

Tax saving on principal repayment
You can claim the principal component of your home loan EMI as a deduction under Section 80C. A maximum amount of Rs 1.5 Lakh is allowed to be claimed.
Tax saving on the interest component
Under Section 24(B) of the Income Tax Act, you can claim the interest component of your home loan EMI as a deduction. You can claim a maximum amount of Rs 2 Lakh as a tax benefit.

Which Is a Better Tax Saving Option?

When it comes to choosing between tax benefits available under Home Rent Allowance and home loan EMIs, it can be difficult. But the choice is completely based on your income and the amount you can claim as a deduction.

The maximum you can claim under home loan EMI is capped at Rs 3.5 Lakh but the HRA exemption depends on several factors.
In case your basic salary is higher leading to an increased HRA exemption amount, then you may choose accordingly. But it varies based on your income.
Keep in mind that your home loan EMI is an investment, as the property will be in your name. However, you should also consider that your home loan EMI is an investment, as you shall have a property in your name. The house rent is an expense that you are paying from your pocket.

With this, you can consider which option provides you with the most benefit and opt for a suitable one. If you are on the lookout for a home loan, estimate the EMI you would have to pay with Kotak Mahindra Bank’s online EMI calculator and apply for a home loan, today.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Home Rent Allowance Vs Home Loan EMI - Which Is a Better Tax Saving Option?

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