The COVID-19 pandemic has forced many people to work from home during the lockdowns. With the benefits of the work from home (WFH) culture visible to both employees (as they may stay at their hometown and cut the cost of staying in expensive metro cities) and employers (as they may save on office rent, electricity, maintenance charges etc), the WFH is going to stay in India even after the end of the pandemic.
In fact, many companies are now categorising the vacancies into “on site” and “permanent WFH” segments.
Taking the advantage, many employees – especially those staying on rent in metro cities – may have shifted to their respective hometowns to save on rent.
Now some of such employees may think of buying a house for them in their hometowns for staying or investment purposes.
But can a salaried person – having office in a metro city – buy a house in hometown by availing a loan and claim tax deductions?
“Yes, a salaried person working in a metro city may claim tax deduction with respect to home loan interest u/s 24(b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’) upto Rs 2,00,000 for a financial year provided such house property is a self-occupied one,” said Dr. Suresh Surana, Founder, RSM India.
In case an employee enjoying WFH buys a house for investment purpose and let it out on rent, he/she may claim even higher deduction on home loan interest.
“The home loan interest deduction limit of Rs 2,00,000 would not apply if the said property is a let out property and the salaried person may claim the entire interest as tax deduction u/s 24(b) of the IT Act,” said Dr. Surana.
“Moreover, the principal component of the home loan as well as the stamp duty value in connection with purchase of the new property can be claimed as deduction u/s 80C (cumulative limit for specified deduction) of the IT Act up to Rs 1,50,000,” he added.
“Another aspect which needs to be taken into consideration is claiming the House Rent Allowance (HRA) exemption u/s 10(13A) of the IT Act read with Rule 2A of the Income Tax Rules, 1962, if forming a part of his salary,” said Dr. Surana.
The HRA benefits, however, will be subject to minimum of the following:
- Actual HRA received
- 50 per cent of salary since the salaried person is living in a metro city and
- Rent paid in excess of 10 per cent of salary (Salary includes basic salary, dearness allowance, if terms of employment provide so and commission as a percentage of turnover)
“The salaried person may be able to claim both the aforementioned exemptions with respect to home loan and HRA (if he is paying rent for stay in the metro city), subject to certain conditions,” said Dr. Surana.
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