Having lived away from home for the past 13 years, I’ve come to understand the ins and outs of renting and paying rent. Once you begin the process, there’s a silver lining—it can help you save tax! While it does eat into a significant portion of your salary, you’re at least assured of some tax relief in the bargain.
However, over time, you begin to realise that rent is a purely recurring expense. This is when the thought of buying a home starts to make sense. Paying an EMI not only inches you one step closer towards owning a home but can also offer tax benefits, making it a more rewarding financial decision in the long run.
When deciding between renting or buying a home, it's important to consider the tax benefits associated with both home loan repayments and House Rent Allowance (HRA). Chartered Accountant Abhay Asknani says, 'The advantages of each option depend on various factors such as your income, rental costs, city of residence, loan amount, tenure, and interest rate. Understanding the key tax deduction rules for both scenarios is essential for making an informed financial decision.’
For many of us, the question of whether to rent or buy a home isn’t just about lifestyle—it’s a deeply personal financial decision. Take Rishika, a young professional living in Mumbai, who’s been renting for years. Each month, she diligently pays her rent, knowing that her House Rent Allowance (HRA) offers some relief by lowering her taxable income. But now, as she dreams of settling into her own space, the idea of taking out a home loan is starting to look more attractive.
Abhay explained the benefits of HRA. ’If you’re renting, HRA offers immediate tax savings,’ he once told her. It’s true—HRA can significantly reduce your tax liability. For Rishika, it’s simple, it is deducted from her taxable income each year. That’s how she’s been saving a decent chunk of her salary.
But, as Abhay points out, there are also limitations. ’If you live in your own house, HRA benefits vanish. And renting from a relative can also disqualify you from claiming it.’ Rishika knew the clock was ticking. The more she rented, the more she felt like she was throwing money away. Would buying a home be a smarter choice?
The conversation then shifts towards home loans. Abhay advises. ’Think of a home loan as a long-term investment,’ he said. ’It builds wealth over time, and both the interest and principal repayments come with tax benefits.’ Unlike HRA, which provides immediate relief, a home loan has the potential to create long-term stability. The house’s value could appreciate, offering you not just a roof over her head, but an asset that could grow with time.
But what about flexibility? With renting, Rishika knew she could pack up and move anytime without worrying about selling property or paying EMIs. Abhay says, ’HRA offers that freedom—no long-term commitment, no interest payments.’ Yet, the idea of stable EMIs, locked in for years, started to appeal to her. Owning a home could mean no more rent hikes, no more landlords, and finally, a place she could call her own.
As Rishika weighed her options, she realised there was no one-size-fits-all answer. It all depended on her financial goals. If she wanted flexibility and immediate tax savings, renting made sense for now. But if building long-term wealth through property ownership was the priority, a home loan could be the key to her future.
Ultimately, she knew it wasn’t just about tax benefits. It was about what felt right for her, at this point in her life. She knows she will make an informed decision—one that aligned with her dreams and financial priorities.