Section 80EE of Income Tax Act: Tax Benefits for Home Loans
Updated: Nov 5
Contrary to popular belief and the jitters that buying a house for the first supposedly induces, a home loan can be beneficial to the first-time buyer-taxpayer. Section 80EE of the Income Tax Act of 1961 enables taxpayers to claim an extra deduction of up to Rs. 50,000 by fulfilling certain criteria.
It is worth understanding that this benefit is specifically on the interest paid on the home loan and is not part of Section 80C of the Income Tax Act 1961.
Under the declaration made during the 2023 Budget, while computing the capital gains tax applicable on the sale of a residential property, any interest paid on home loans claimed by the seller as a deduction under income tax during the period of their ownership shall not be considered as a part of the cost of acquisition, which refers to the original purchase price of the property.
Table of Contents:
What is Section 80EE of the Income Tax Act?
Section 80EE provides tax relief to the taxpayers who have taken out a home loan. It enables home buyers to take the income tax benefits on the interest they are required to pay on home loans. According to the section, up to INR 50,000 can be claimed. This deduction is claimed only if the taxpayer chooses the old tax regime.
The home loan should be sanctioned between 1st April to 31st March. To claim the deductions under section 80EE, you must file the tax return. The last date to file the tax returns for FY 2023-24 was 31st July 2024.
Features of 80EE of the Income Tax Act
Eligibility requirements: Only persons are eligible for the deduction under this section. This means that whether you are a firm, an AOP, a HUF, or any other type of taxpayer, you are not eligible to receive the benefit under this provision.
Limit: A deduction of up to Rs 50,000 may be made. It exceeds the Rs 2 lakh threshold set forth in Income Tax Act Section 24.
Additional requirements: At the time of the financial institution's loan approval, you must not have owned any other real estate to be eligible for this deduction.
The earlier deductions are per person not home. So, in case the taxpayer has owned the property collectively and has taken the joint home loan, each person repaying the loan amount can qualify to claim the deduction individually.
Note: Only if the person chooses to use the old tax regime may they claim this deduction.
Purpose of 80EE Deduction under the Income Tax Act
The purpose is that it allows first-time home buyers to get the tax deduction on interest to be paid on home loans.
An interest of over INR 50,000 per financial year
The deduction can be continued to claim until the loan is fully repaid.
80EE of the Income Tax Act and Section 24
If you can fulfill the conditions of both sections, you should be quick to claim the advantages.
First to exhaust the deduction limit under section 24 up to Rs. 2 lakhs
Second to claim the additional benefits under section 80EE
Section 80EE of Income Tax Act: Eligibility to Claim Deduction
Let us take an informative dive into the eligibility criteria to qualify for claiming 80EE deductions.
1) The benefits that can be claimed by individual taxpayers either separately or together. If a person has purchased a property with their spouse and both of them are making loan payments, they can both claim the deduction. However, entities such as Associations of Persons (AOP), Hindu Undivided Families (HUF), Companies, Trusts, and others are not eligible for this tax benefit.
2) To be eligible for tax benefits under Section 80EE, only individuals who are purchasing their first home can claim it, which means that they do not own any other residential property on the date when the loan is sanctioned. Additionally, the loan must be obtained from either a financial institution or a housing finance company for the deduction to be claimed.
3) Please note that the tax benefit under Section 80EE is offered to individuals and not per property. In addition to the limit of Rs. 2 lakh allowed under section 24(b), a maximum deduction of Rs. 50,000 is permitted under this section.
Section 80EE of Income Tax Act: Prerequisites to claim deduction
A concise overview of the prerequisites for declaring 80EE deduction
1) The house being purchased should not exceed the value of Rs. 50 lakhs.
2) The loan amount taken for the house should not exceed Rs. 35 lakhs.
3) The loan should be approved by a financial institution or a housing finance company.
4) The loan should be approved within the time frame of 01.04.2016 to 31.03.2017.
5) The person claiming this benefit should not own any other residential property at the time when the loan was sanctioned.
Difference between Section 80EE and 80EEA
Tax benefits on interest deductions of up to Rs. 1,50,000 for affordable housing loans taken during the period 1 April 2019 to 31 March 2022 are now available under the recently introduced Section 80EEA of the Union Budget 2019. To claim this benefit, the individual taxpayer should be a first-time home buyer and not eligible for deduction under Section 80EE.
The table below highlights the difference between Section 80EE & section 80EEA of the Income Tax Act:
Basis of difference | Section 80EE | Section 80EEA |
Loan sanction timeline | 01-04-2016 to 31-03-2017 | 01-04-2019 to 31-03-2022 |
Deduction allowed on interest | Rs. 50,000 | Rs.1,50,000 |
Loan amount threshold | Rs. 35,00,000 | No limit |
Value of the home | Rs. 50,00,000 (Actual Value) | Rs. 45,00,000 (Stamp duty value) |
Section 80EE and Section 24
The amount of deduction for interest under Section 24 for a self-occupied property is limited to Rs. 2,00,000, while there is no limit for non-self-occupied property. As for Section 80C, the amount of deduction for the principal for a self-occupied property is Rs. 1,50,000, while it is also Rs. 1,50,000 for a non-self-occupied property. Under Section 80EE, the interest deduction is limited to Rs. 50,000 for both self-occupied and non-self-occupied properties.
Taxpayers can avail of tax benefits on the interest paid on home loans under two sections, namely section 80EE and section 24, with a combined upper limit of Rs 2,50,000. This amount can be divided between the two sections as follows: section 24 allows deductions of up to Rs 2,00,000, while Section 80EE allows deductions of up to Rs 50,000. Together, taxpayers can claim a maximum total deduction of up to Rs 2,50,000.
How to Claim Home Loan Interest in ITR?
Below is the step-by-step guide to claiming the house loan interest in ITR-
Collect all the loan documents related to housing loans. It includes loan agreements, interest certificates, principal, and interest components paid during the financial year.
Check the tax deductions on the interest paid on housing loans under section 24(b) of the Income Tax Act. The maximum deduction allowed is INR 2 lakh per financial year for self-occupied property.
An interest certificate is provided by an employer that contains the details of interest paid on a housing loan during the financial year. The lender issues an interest certificate.
Fill out the right ITR form based on income sources and financial status. For most of the individuals with salary income and house loan interest, ITR-1 or 2 is applicable.
Enter the interest amount in the ITR form. Make sure the amount matches the figure mentioned in Form 16 or the interest certificate.
Check the pre-construction interest under section 24(b). This deduction is claimed in five equal installments that begin from the year of property completion.
Verify the information and submit ITR online through the income tax department portal
Keep the documents related to home loans like loan statements, interest certificates, and property possession certificates, or may create them during the income tax audit.
Conclusion
In summary, you can receive tax benefits on the principal as well as the interest portion of a house loan. For your contributions to the interest payment, you are eligible for tax deductions under Sections 24b and 80EE. Furthermore, Section 80EE allows you to deduct up to Rs 50,000 in a single financial year. Nevertheless, this is limited to loans approved between April 1, 2016, and March 31, 2017.
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FAQs:
Q1. What is an 80EE exemption?
Individuals may benefit from home loan tax benefits under Section 80EE on the interest portion of residential property loans obtained from any type of financial institution. This provision states that a person may deduct up to Rs 50,000 in a given fiscal year. Until your loan is all repaid, you can claim this deduction. It should be noted that individuals filing under section 80EE may only be eligible for a deduction if their house loan was approved between April 1, 2016, and March 31, 2017.
Q2. What is the maximum amount I can claim as a deduction under Section 80EE?
Section 80EE allows for a maximum deduction of Rs 50,000 per individual.
Q3. Can I claim Section 80EE benefits for a home loan taken now?
The only borrowers eligible for a rebate under Section 80EE are those whose loans were approved between April 1, 2016, and March 31, 2017. On the other hand, you can deduct up to Rs. 1,50,000 for interest paid on the loan under section 80EEA if you borrowed it between April 1, 2019, and March 31, 2022, solely under the previous tax system. However, under section 24 under house property income, one may deduct up to Rs. 2,00,000.
Q4. If the borrower does not reside in the home for which the benefit is received, is it still possible for him to claim a deduction under Section 80EE?
Residency on the same property as the benefit is not necessary to claim a deduction under Section 80EE. Even if the borrower lives in a rented home, he is still eligible to claim the deduction.
Q5. Is the deduction under section 80EE allowed over the deduction limit of Rs. 2,00,000 provided under Section 24(b)?
In addition to the Rs. 200,000 deduction permitted by Section 24(b), a deduction of Rs. 50,000 may be taken.
Q6. Can deduction under Section 80EE be claimed under the new tax regime?
No, if the person chooses to use the new tax system, they cannot claim the deduction under Section 80EE.
Q7. Can I exempt my second home from paying taxes?
Under section 80EE, the benefit on the second house is not available.
Q8. Is it possible for me to use both section 24 and section 80EE to my advantage in the same tax year?
In a single year, you may claim tax benefits under both sections 24 and 80EE. First-time house buyers can claim a tax deduction under Section 80EE of the Income Tax Act of 1961 for the amount they pay as interest on a home loan, but the loan must be sanctioned between January 1, 2016, and March 31, 2017, inclusive. The most that can be deducted under this clause in a fiscal year is Rs. 50,000. The amount that may be claimed is greater than the Section 24 deduction of Rs. 2,000,000.
Q9. Could you shed light on the difference between Section 80EE and Section 24(b) under the premise of the Income Tax Act and elaborate on the nitty gritty to be kept in mind for both?
For self-occupied property, a deduction of Rs 2 lakh is permitted under Section 24(b), while for property that is rented out, the entire interest is deductible.
However, Section 80EE only permits a further deduction of Rs 50,000 once the Section 24(b) cap has been reached. It is available to those taking out loans from financial institutions between 1st April 2016 and 31 March 2017 who are first-time home buyers.
Q10. What is the provision of Section 80EE regarding claiming a deduction of interest on a home loan in subsequent years if it was not claimed in the Financial Year 2016-2017?
Section 80EE does not have a condition that prohibits the taxpayer from claiming a deduction of interest on a home loan in subsequent years if they did not claim it in FY 2016-17. Therefore, the taxpayer can claim the deduction now as well, provided they have not completed the loan repayment.
Q11. Can an assessee avail of tax benefits under Section 80EE along with Section 80EEA at the same time?
No, an individual taxpayer can avail either from the deduction offered under section 80EE or section 80EEA according to the respective eligibility criteria. There is a condition within which a housing loan should be availed. It does not overlap and cannot be claimed at the same time.
Q12. Is Section 80EE of the Income Tax Act applicable to the construction of a house?
According to section 80EE of the Income Tax Act, the tax deduction for interest on home loans can be claimed only in home loans taken for residential house property acquisition. Hence section 80EE does not apply to house construction.
Q13. What is the 80EE rule?
The first-time homebuyers can benefit from an additional deduction on home loan interest under the 80EE rule. If the loan is supported within a specified period. Property appraisal and loan amount must not exceed INR 50 lakhs. The deduction is effective until the loan is repaid.
Q14. Can I claim both sections 24 and 80EE?
Both sections 80EE and 24 can provide additional tax deductions that can be taken in the same year. A home loan interest rate limit is the maximum interest claim. Section 24 limits the allowable deduction for the home loan interest up to INR 2 lakhs. The following section 80EE helps to claim the remaining interest.
Q15. Can I claim a 100% tax benefit as a co-owner?
Yes, both co-owners are eligible to claim the tax benefits offered by section 24, 80ee and 80eea. As you both own property and loan. It is essential to ensure that the combined interest expenses of both shared owners do not increase the actual amount of loan interest incurred. To calculate the co-owner deductions can take into account contributions made through loans and purchases.
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