Extend HRA tax benefit to home loans as well: Budget 2023

Union Budget 2023: The most common component of salary slips is house rent allowance (HRA). Those who live in a rented home can take advantage of the HRA tax benefits. The Chamber of Tax Consultants (CTC) has stated in its pre-Budget memorandum and discussions with officials of the Central Board of Direct Taxes (CBDT) that from an I-T standpoint, it may be better to stay in rented premises.

According to tax experts, both options (buy or rent) should be taxed equally, and renting should not be subsidised in any case.

Section 10 (13A) of the I-T Act, read with Rule 2A, limits HRA exemption to the lowest of the three components: Rent paid minus 10% of salary (basic salary plus dearness allowance); 50% of salary if the house is located in the four metros or 40% of salary in other cities; actual HRA received.

According to the CTC, the benefit of the HRA exemption must be extended to the repayment of home loans obtained by an employee for the purchase of a first home. However, the same EMI payment cannot be deducted twice under different sections. This suggestion would also help housing projects and encourage home purchases.

According to tax experts, the scope of the tax benefits available against home loans is relatively limited.

“Section 80C allows for a deduction of Rs. 1.5 lakh for the repayment of home loan instalments obtained through authorised channels” (say a bank). However, all investments and expenses that qualify for deductions under this section, such as contributions to the Public Provident Fund (PPF) and Employees’ Provident Fund, are included in this limit (EPF). It is common for salaried employees to reach the Rs. 1.5 lakh cap through EPF and other investment plans,” as noted by chartered accountant and former CTC president Hinesh R. Doshi.

Additionally, all home loan repayment deductions previously taken under section 80C are reversed in the year of sale if the house is sold within five years of purchase.

Tax experts recommend reexamining a number of issues. The maximum amount of home loan interest that can be deducted under the heading “income from house property” if a home is self-occupied is Rs. 2 lakh. Interest is only permitted in five equal instalments after construction if a house is under construction. The buyer suffers consequences if a housing project is delayed for more than five years because the interest deduction is only worth Rs 30,000.

It should be noted that if the taxpayer chooses the new personal I-T regime, HRA and tax breaks for home loan interest and repayment are not available.