Buying a home is a huge decision that has significant implications on the rest of our life. It is one of the major goals that we seek to achieve as soon as possible. However, there is one school of thought that believes that renting  a house is a way smarter decision than buying a house. Let us examine both cases from the taxation perspective to decide which one is better. Most readers are salaried individuals and hence. I will examine this from such an individual’s perspective where he does not have the money to buy a property with full down payment. He needs to go for a home to buy a house as well as those paying rent for their house can claim tax deduction on their expenses.



Tax deductions for a home loan

Let’s first take a look at tax benefits that can be claimed on home loan. There are two parts to a home loan EMI-principle part and interest part. Deduction can be claimed under section 80C of Income Tax Act for the principle amount of EMI paid during the year. Maximum deduction that can be claimed under this section is Rs. 1,00,000 per annum.

For the interest part of your EMI, you can claim deduction under section 24 of Income Tax Act. Under this section you can claim a deduction of maximum Rs. 1,50,000 per annum.

People taking a home loan for their first property can claim an additional deduction of Rs. 1,00,000 on the interest part of their EMI. To qualify for this deduction, the following conditions needs to be met:


·        You should be buying your first property.

·        The loan should be sanctioned between april 1, 2013 to march 31, 2014.

·        Value of the residential property should not exceed Rs. 40,00,000.

·        Loan amount sanctioned should not be more than Rs. 25,00,000.

You can claim deduction under sec.24 on interest payment for your second (or third, fourth) property. In this case, there is no cap of Rs. 1,50,000 per annum. You can claim deduction on entire interest part of your EMI. However, the deduction on principal part (under sec. 80C) is not available is this case.

If you have an owned house but need to stay in a rented house in another city because of your job, you can still claim all deductions on your home loan – both principle part under section 80C and interest part under section 24.



Tax deductions for rent

Tax exemption on rent payments can be claimed under Housing Rent Allowance part of your salary under sec. 10(13A) of Income Tax Act.
The amount that you can claim as deduction should be the minimum of following three amounts:

·        Actual house rent allowance received in your salary.

·        50% of the ‘Basic’ + ‘Dearness Allowance’ component of your salary.

·        Actual rent paid minus 10% of the ‘Basic’ + ‘Dearness Allowance’ component of your salary.


You cannot claim exemption under HRA if you are not paying rent-meaning if you are staying in your own house.