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HRA Vs Home Loan Tax benefits

House Rent Allowance (HRA) offers immediate tax relief for renters, while Home Loan tax benefits provide long-term financial stability and wealth creation through deductions on principal and interest payments.

  • 2,007 Views | Updated on: May 10, 2024

The decision to rent a home versus opting for homeownership through a home loan transcends mere personal preferences; it is a financial choice laden with noteworthy tax implications. A home loan and House Rent Allowance (HRA) come with unique tax benefits that can substantially impact your overall financial well-being.

What is House Rent Allowance (HRA)?

House Rent Allowance, commonly known as HRA, is an allowance provided by employers to employees as a part of their salary package. Its primary purpose is to assist employees in meeting their rental expenses when residing in rented accommodations. HRA recognizes the financial burden of renting a home and aims to provide some relief to individuals.

House Rent Allowance (HRA) Tax Benefits

House Rent Allowance (HRA) is a vital component of many salary structures, providing financial assistance to individuals in meeting their rental expenses. HRA’s array of tax benefits makes it even more appealing.

Immediate Relief

HRA offers immediate tax relief for individuals living in rented accommodations. Under Section 10(13A) of the Income Tax Act, a portion of the HRA is exempt from taxation.

Exemption Calculation

The exemption is calculated based on the least of the following three factors:

  • Actual HRA received.
  • 50% of basic salary (60% for metro cities, 40% for non-metro cities).
  • Actual rent paid minus 10% of salary.

Flexibility and Short-Term Advantage

HRA provides flexibility for those with short-term housing needs or those who prefer the freedom to change residences without long-term commitments.

What are Home Loans?

A home loan, or a mortgage, is a financial arrangement in which a lending institution provides funds to an individual or a couple to purchase or refinance a residential property. The primary purpose of a home loan is to enable individuals who may not have the immediate financial capacity to buy a home outright to achieve homeownership.

Home Loan Tax Benefits

Owning a home is a dream cherished by many, and to turn this dream into reality, individuals often turn to home loans. Beyond the pride of homeownership, there’s a financial silver lining in the form of tax benefits.

Deductions on Principal and Interest

Home loan borrowers can avail deductions under Section 80C to repay the principal amount.

Section 24 provides deductions on the interest paid on the home loan, with additional benefits for first-time homebuyers under Section 80EEA.

Long-Term Financial Stability

Homeownership through a loan signifies a long-term commitment, but it comes with the potential for financial stability and wealth creation through property appreciation.

Tax Benefits for Let-Out Properties

If you let out the property, the entire interest paid on the home loan is deductible, providing an additional avenue for tax benefits.

HRA vs Home Loan: Which Option is Better?

While HRA offers immediate relief for renters, a home loan supports long-term financial stability and potential wealth creation through property ownership.


House Rent Allowance (HRA)

Home Loan


Provides relief for rental expenses incurred by individuals.

Facilitates homeownership by offering financial support.

Eligibility Criteria

Applicable to those living in rented accommodations.

Available for individuals purchasing or constructing a home.

Tax Benefits

Exemption on HRA based on specific calculations (Section 10(13A)).

Deductions on principal (Section 80C) and interest (Section 24). Additional benefits for first-time homebuyers (Section 80EEA).


Offers flexibility for those with uncertain or changing living situations.

Implies a long-term commitment and stability.

Financial Impact

Immediate relief through exemptions on rent payments.

Long-term financial stability and potential wealth accumulation through property ownership.

Risk Factor

Minimal financial risk associated with rental expenses.

Property market fluctuations and mortgage-related risks.

Overall Financial Goal

Provides immediate financial relief but lacks long-term wealth creation.

Focused on long-term stability, potential appreciation, and wealth accumulation.

Final Thoughts

The choice between HRA and Home Loan tax benefits is nuanced, requiring careful consideration of your financial goals, tenure considerations, and risk appetite. While HRA offers immediate relief, home loans provide a pathway to long-term stability and potential wealth accumulation through property ownership. It is crucial to assess your unique circumstances and consult with financial experts to make an informed decision that aligns with your financial objectives.

Key takeaways

  • House Rent Allowance (HRA) is a provision where the employee is provided with tax relief if they pay house rent.
  • HRA offers flexibility for short-term housing needs.
  • HRA exemptions are calculated based on actual HRA received, salary percentage, and rent paid.
  • Home loan tax benefits offer long-term financial stability through deductions on principal and interest payments.
  • Home loan entails a long-term commitment and potential wealth accumulation through property ownership.
  • Home loan deductions involve principal and interest components, with additional benefits for first-time homebuyers.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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