Tax Implications for Commuters: Residency and Mortgage Rules for Split-Domicile Households
Tax Implications for Dual-Housing Scenarios
Background: A software engineer in Bangalore, allowed to work from home for 15 days a month, inquires about claiming House Rent Allowance (HRA) for two rented houses and tax benefits on interest paid for home loans for two flats in different cities in Gujarat.
HRA Benefits: Under the old tax regime, the HRA benefit is available to salaried individuals for rent paid for the house occupied by them. The exemption quantum is restricted to the least of:
- Excess of rent paid over 10% of basic salary
- 50% of basic salary for metro cities (40% for non-metro cities)
- HRA actually received
Expert's Analysis: The exemption can be claimed for only one house occupied by the employee. However, there is no restriction on claiming HRA for the place of duty. Therefore, the individual can avail HRA benefit in respect of any one house.
Interest on Home Loan: Following the old tax regime, the individual can claim deduction for full interest paid for home loans for both houses. However, loss under the head house property can be set off up to Rs 2 lakh against other income during the same year. Loss not adjusted is allowed to be carried forward for next eight years.
New Tax Regime Considerations: If the individual opts for the new tax regime, loss under the house property income is not allowed to be set off against income under other heads or carried forward. Therefore, the individual can claim interest on home loan for both houses taken together only to the extent of taxable rent of all let-out properties taken together during the year. No deduction is allowed under the new tax regime for self-occupied properties.
Key Figures:
- Rs 8 lakh: HRA received every year
- Rs 8,000: Expected rental income for each flat
- 15 days: Work-from-home days per month
- Rs 2 lakh: Loss set-off limit under the old tax regime
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