Clipped from: https://www.financialexpress.com/money/income-tax/wrong-hra-and-home-loan-claim-in-itr-heres-how-you-can-fix-it/4239660/
Claimed HRA and home loan tax benefits incorrectly in your ITR? Know when both claims are allowed, possible tax notices, penalties, and how to fix mistakes through revised return or ITR-U filing.
The old tax regime allows HRA exemption under Section 10(13A) and benefits on home loan under Section 24(b) (interest paid on home loan) and Section 80C (principal repayment).
If you have claimed both HRA exemption and home loan tax benefits in your ITR, it is worth checking whether you were actually eligible to do so. While many taxpayers can legally claim both, the wrong combination could result in extra tax demand or questions from the Income Tax Department.
Identify the nature of the error
Taxpayers should first review:
- You cannot claim home loan interest and principal deduction for self-occupied property, and HRA under the new regime, and the income tax portal does not allow you to claim such deductions.
- Opt for the old tax regime in the initial sections, in order to claim the aforesaid deductions.
- Whether rent was actually paid to a landlord and supported with proper documentation and clear banking trails.
- Whether home loan deductions claimed are within prescribed limits, such as:
- Up to Rs 2 lakh for self-occupied property interest under Section 24(b)
- Overall Rs 1.5 lakh cap under Section 80C for principal repayment and other eligible investments.
If the return has been filed, but a revision is still allowed
Even under the old regime, you cannot claim HRA and a home loan together when you are living in a property owned by you. If so claimed, it is highly recommended to revise the return within the specified time limits, explains CA Chandni Ananadan, Tax Expert at ClearTax.
If the revision window is still open, taxpayers can file a revised return to:
- Recompute HRA exemption correctly,
- Recalculate eligible home loan deductions, and
- Remove any excess or overlapping claims.
If a notice has already been received
Where the department has issued an intimation or scrutiny notice, taxpayers should respond with relevant documents such as:
- Rent receipts and rent agreement,
- Form 12BB,
- Home loan interest certificate, and
- Property ownership proof.
If the claim was genuinely incorrect, accepting the adjustment and paying any additional tax and interest may help close the matter faster and reduce prolonged scrutiny.
How to avoid such errors in the future
Since HRA and home loan deductions are closely monitored, taxpayers should:
- Review eligibility carefully each year,
- Maintain supporting documents, and
- Seek professional assistance in complex cases, such as owning a house in one city while staying on rent in another.
When can you legally claim both?
Taxpayers can legally claim HRA exemption and home loan deductions together. As per Cleartax, this generally occurs in cases where a person has taken a house on loan and is living in a rented accommodation in another city, has taken a house on loan and is living in a rented accommodation in the same city, has taken a home loan to buy an under construction apartment/house and is living on rent elsewhere or has rented the house he or she have taken with a home loan and living in a rented accommodation somewhere else.
What happens if the claim is incorrect?
The old tax regime allows HRA exemption under Section 10(13A) and benefits on home loan under Section 24(b) (interest paid on home loan) and Section 80C (principal repayment). However, if a taxpayer is living in their own self-occupied house and still claims HRA to pay rent without a real landlord arrangement, it may cause issues.
Taxpayers often face problems when they claim HRA while living in their own house, claim HRA for rent paid to a spouse or claim HRA and home loan benefits for the same property address.
If the tax department detects a mismatch or invalid claims, taxpayers may receive an Income tax notice, a demand for additional tax payment, interest on unpaid taxes under Sections 234B and 234C and a penalty in certain cases involving misreporting.
What can taxpayers do to correct the mistake?
After filing their Income Tax Return (ITR), taxpayers can file an updated return under ITR-U, Section 139(8A) within the timelines specified by law to correct the error. If the original ITR was filed before the due date and the revision window is still open, taxpayers can file a revised return under Section 139(5) with revised HRA or home loan details.
Taxpayers should also keep in mind that the documents that might be needed in case of scrutiny are rent receipts, rental agreement, bank transfer proof of rent payment, home loan interest certificate and possession certificate of property.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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