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Section 80EEA: Deduction for Interest on Home Loan for Certain House Property
For many individuals, owning a home is a cherished dream. The Indian government has taken steps to make this dream more achievable, especially for the economically weaker sections of society. One such initiative is the introduction of Section 80EEA, a provision in the Income Tax Act that offers a deduction for interest paid on home loans for affordable housing. In this blog, we will delve into the details of Section 80EEA and explore how it can benefit aspiring homeowners.
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Understanding Section 80EEA
Section 80EEA was introduced in the Union Budget of 2019 with the aim of promoting affordable housing and providing tax relief to first-time homebuyers. The deduction is applicable to individuals who meet certain criteria and have taken a home loan for the purchase of their first residential property.
Tax Benefits on Home Loan (FY 2022-23)
The deduction is calculated as the lower of the actual interest payment or Rs.50,000.
This deduction is in addition to the exemption under Section 24 if other conditions are met.
Example: If the stamp duty value exceeds Rs. 45 lakh, the taxpayer is ineligible for Section 80EEA but can claim a Section 24 exemption of up to Rs. 2,00,000.
Other Sections for Deduction of Interest on Home Loan
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Section 24: Exempts interest payments on home loans up to Rs. 2,00,000 under house property income with specific conditions.
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Section 80EE: Allows a deduction of Rs. 50,000 for interest on home loans meeting criteria like house value up to Rs. 50 lakh and loan sanction between April 1, 2016, and March 31, 2017.
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Section 80C: Allows a deduction up to 150,000. The principal paid on the home loan EMI for the year is allowed as a deduction under Section 80C.
Features of Section 80EEA
The features of Section 80EEA of the Income Tax Act, 1961 are outlined to provide an additional deduction on home loan interest for first-time homebuyers of affordable housing. Here are the key features of Section 80EEA:
Eligibility Criteria
Section 80EEA is available to individuals who are first-time homebuyers. A first-time homebuyer is defined as someone who does not own any residential property (self-occupied or let-out) at the time of sanctioning the home loan.
Maximum Deduction
The deduction under Section 80EEA is limited to a maximum amount of Rs. 1.5 lakh per financial year.
Affordable Housing Property
The deduction is applicable to home loans taken for the purchase of affordable housing properties. The stamp duty value of the property should be up to Rs. 45 lakh.
Joint Ownership
The deduction can be claimed individually or jointly by the co-owners of the property. Each co-owner can claim a deduction up to the maximum limit of Rs. 1.5 lakh.
Time Limit
The deduction can be claimed for home loans sanctioned by financial institutions between 1st April 2019 and 31st March 2022.
Existing Deductions
The deduction under Section 80EEA is in addition to the existing deduction of up to Rs. 2 lakh available under Section 24(b) for home loan interest.
Eligibility for Claiming Deduction under Section 80EEA
The eligibility criteria for claiming a deduction under Section 80EEA of the Income Tax Act are as follows:
1. Individual Assessee: The deduction under Section 80EEA is available only to individual assesses. Hindu Undivided Families (HUF), Association of Persons (AOP), Body of Individuals (BOI), Partnership firms, and other types of taxpayers are not eligible to claim this deduction.
2 .First-Time Homebuyer: TThe individual must be a first-time homebuyer. A first-time homebuyer is defined as someone who does not own any residential property (either self-occupied or let-out) at the time of sanctioning the home loan.
3. Stamp Duty Value of Residential House: The stamp duty value of the residential house property for which the loan is taken should be up to Rs. 45 lakh. The stamp duty value is the value adopted or assessed by any authority of the Central Government or a State Government for the purpose of payment of stamp duty.
4. Loan from a Financial Institution: The home loan must be taken from a financial institution. Financial institutions include a banking company to which the Banking Regulation Act applies, any bank or banking institution referred to in Section 51 of that Act, or a housing finance company.
5. Sanctioned Loan Period: The loan must be sanctioned by the financial institution between April 1, 2019, and March 31, 2022. Homebuyers must ensure that the loan approval falls within this specified time frame to be eligible for the deduction.
6. Not Claiming Deduction under Section 80EE: The individual must not be claiming any deduction under Section 80EE. Section 80EE and Section 80EEA have different provisions, and a taxpayer cannot simultaneously claim deductions under both sections.
7. No Ownership of Residential House: The individual should not own any residential house property on the date of sanction of the loan. This condition reinforces the first-time homebuyer criterion.
8. Additional Condition - Carpet Area: While not explicitly mentioned under Section 80EEA, there is an additional condition related to carpet area, as mentioned in the memorandum to the finance bill. The carpet area should not exceed 60 square meters in metropolitan cities (Bengaluru, Chennai, Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad, Hyderabad, Kolkata, and the whole of Mumbai Metropolitan Region) or 90 square meters in cities or towns other than metropolitan cities.
Meeting all these eligibility criteria is crucial for individuals to qualify for the deduction under Section 80EEA.
How do we compute the deduction calculated under Section 80EEA?
The deduction under Section 80EEA is calculated based on the interest payable on the home loan during the financial year. Here's a step-by-step guide on how the deduction is calculated under Section 80EEA:
1. Determine the Interest Payable:
Calculate the total interest payable on the home loan for the specific financial year. This interest amount should be related to the affordable housing property for which the loan is taken.
2. Identify the Maximum Deduction Limit:
The maximum deduction allowed under Section 80EEA is up to Rs. 1.5 lakh per financial year.
3. Compare Interest Payable with Maximum Deduction Limit:
Compare the total interest payable with the maximum deduction limit. The taxpayer can claim a deduction equal to the lower of the actual interest paid during the financial year or Rs. 1.5 lakh.
Mathematically, Deduction under Section 80EEA = Minimum of (Actual Interest Paid, Rs. 1,50,000)
Illustrative Example:
Let's consider an example: Assume a first-time homebuyer has taken a home loan with the following details:
Loan Amount: INR 40 lakhs
Interest Rate: 8% per annum
Loan Tenure: 20 years
Calculate the annual interest payable on the loan. For the first financial year, let's assume the interest payable is INR 3.2 lakhs.
4. Apply the Deduction Limit
Since the interest payable exceeds the maximum deduction limit of Rs. 1.5 lakh, the taxpayer can claim the maximum deduction of Rs. 1.5 lakh under Section 80EEA for that financial year.
Deduction under Section 80EEA = Minimum of (3,20,000, 1,50,000) = Rs. 1,50,000
The deduction under Section 80EEA is available for a maximum of up to Rs. 1.5 lakh per financial year. The taxpayer can continue to claim this deduction until the repayment of the loan or until the interest is fully paid, whichever is earlier.
Deductions for stamp duty and registration charges
Deductions for stamp duty and registration charges are permissible under Section 80C of the Income Tax Act. However, these deductions are subject to the overall limit of Rs. 1.5 lakh, which encompasses various eligible expenses and investments, including principal payments. It's important to note that this deduction is applicable regardless of whether a home loan is availed. Additionally, taxpayers can claim this benefit in the year when the expenses are actually incurred.
Deductions on interest paid for properties under construction
Deductions for the interest paid on properties under construction are allowed by the Income Tax Act for both the pre-construction and post-construction periods. The interest on pre-construction loans can be claimed in five equal annual installments, starting from the year when the residential property is acquired or completed. The total deduction under Section 24(b) includes 1/5th of the interest related to the pre-construction period (if any) and the interest related to the post-construction period.
What deduction is available under section 24B
Under Section 24(b) of the Income Tax Act, individuals can claim a deduction for the interest paid on their home loans. For a self-occupied residence, a maximum tax deduction of Rs. 2 lakh per year is allowed, provided that the construction or acquisition of the house is completed within five years.
If the conditions of both Section 24 and Section 80EEA are met, individuals can claim benefits under both sections. The deductible limit under Section 24, which is Rs. 2 lakh, should be exhausted first, followed by the additional benefits under Section 80EEA. This deduction is an addition to the Rs. 2 lakh limit allowed under Section 24.
How to claim deduction in case of Joint owner
In the case of a joint home loan, each borrower can claim deductions for home loan interest up to Rs. 2 lakh under Section 24(b) and a tax deduction for principal repayment up to Rs. 1.5 lakh under Section 80C. This doubles the number of deductions compared to a single-applicant home loan, but both applicants must be co-owners of the property and pay EMIs.
Are there any benefits associated with the purchase of a second house?
For a second home loan used to purchase another property, similar tax benefits apply, subject to the specified limitations. The 2019 Union Budget introduced additional incentives for real estate investment. Previously, only one property could be considered self-occupied, and a second house was deemed to be let out, with notional rent calculated and taxed as income. However, a second home can now be treated as a self-occupied property.
How is section 80EEA different from section 80EE
Criteria | Section 80EEA | Section 80EE |
|---|---|---|
Stamp Duty Value Limit | Value of the house should be up to Rs. 45 lakh | The value of the house should be Rs. 50 lakh or less. |
Loan Sanction Period | Loan should be sanctioned from 01 April 2019 to 31 March 2020. | The loan should be sanctioned from 01 April 2016 to 31 March 2017. |
Maximum Deduction | Rs. 1,50,000/- | Rs. 50,000/- |
Land Value Limit | No limit on the value of the land. | The value of the land should not be more than Rs. 35 lakh. |
Possession Requirement | No possession requirement; as soon as interest payment starts. | Possession of the house is required to claim deduction. |
Additional Conditions | Carpet areas should not exceed 60 square meters in metropolitan cities or 90 square meters in other cities or towns. | No specific conditions related to carpet area. |
How is section 80EEA different from section 80EE
Criteria | Section 80EEA | Section 24 |
|---|---|---|
Possession Requirement | No possession requirement; claim as soon as interest payments begin. | Possession of the house is required. |
Lending Institutions | Limited to home loans from banks and financial institutions. | Allows exemption for loans from friends or relatives. |
Maximum Deduction Available | Rs. 1,50,000/- | Rs. 2,00,000/- |
Conditions for Deduction | 1. Stamp duty value of the house up to Rs. 45 lakh. <br> 2. Assessee does not own any residential house property. <br> 3. Loan sanctioned during 01-April-2019 to 31-March-2020. <br> 4. No claim under section 80EE. <br> 5. No ownership of residential house property at the loan sanction date. | No specific conditions related to stamp duty value or ownership. |
Value of House Property | Stamp duty value of the house should be up to Rs. 45 lakh. | The value of the house should be Rs. 50 lakh or less. |
Loan Sanction Period | Loan should be sanctioned between 01-April-2019 to 31-March-2020. | No specific time frame for loan sanction. |
Land Value Limit | No limit on the value of the land. | The value of the land should not be more than Rs. 35 lakh. |
Frequently asked questions
Q
What is Section 80EEA?
A
Section 80EEA is a provision in the Income Tax Act that provides an additional deduction on home loan interest for first-time homebuyers of affordable housing.
Q
Who is eligible for the deduction under Section 80EEA?
A
The deduction is available to individuals who are first-time homebuyers and do not own any residential property at the time of sanctioning the home loan.
Q
What is the maximum deduction under Section 80EEA?
A
The maximum deduction under Section 80EEA is Rs. 1.5 lakh per financial year.
Q
Can the deduction under Section 80EEA be claimed for joint ownership of a property?
A
Yes, the deduction can be claimed individually or jointly by the co-owners of the property, with each co-owner eligible for a deduction up to Rs. 1.5 lakh.
Q
What is the time limit for claiming the deduction under Section 80EEA?
A
The deduction can be claimed for home loans sanctioned by financial institutions between 1st April 2019 and 31st March 2022.
Q
Is the deduction under Section 80EEA in addition to existing deductions for home loan interest?
A
Yes, the deduction under Section 80EEA is in addition to the existing deduction of up to Rs. 2 lakh available under Section 24(b) for home loan interest.
Q
How is the deduction calculated under Section 80EEA?
A
The deduction is calculated as the lower of the actual interest payment or Rs. 1.5 lakh, whichever is lower.
Q
Can a person claim the deduction under Section 80EEA if the stamp duty value exceeds Rs. 45 lakh?
A
No, the deduction is applicable to properties with a stamp duty value of up to Rs. 45 lakh.
Q
What are the conditions for claiming the deduction under Section 80EEA?
A
Conditions include the stamp duty value being up to Rs. 45 lakh, the loan being from a financial institution, and the loan being sanctioned between 01-04-2019 to 31-03-2020.
Q
Is the deduction under Section 80EEA available for houses in metropolitan cities?
A
Yes, with additional conditions related to carpet area not exceeding 60 square meters in metropolitan cities.
Q
What is the meaning of "Financial Institution" in Section 80EEA?
A
Financial Institution refers to a banking company, bank, or housing finance company as defined in the Banking Regulation Act.
Q
What does "Carpet Area" mean under Section 80EEA?
A
Carpet area refers to the actual usable area of a property, excluding walls and ducts.
Q
Are Housing Loan Principal Repayments eligible for deduction under Section 80EEA?
A
No, Section 80EEA specifically provides a deduction for interest payments on home loans.
Q
Can a taxpayer claim both Section 24 and Section 80EEA benefits simultaneously?
A
Yes, if the taxpayer satisfies the conditions of both sections, benefits under both can be claimed.
Q
What are the tax benefits of joint home loans?
A
Each co-borrower can individually claim deductions on interest under Section 24(b) and on principal repayment under Section 80C based on their ownership share.
Q
Are there tax benefits for a second home loan?
A
Yes, similar benefits apply to a second home loan, subject to overall restrictions, and it can be considered as self-occupied property.
Q
Can stamp duty and registration charges be claimed as tax deductions?
A
Yes, under Section 80C, but within the overall limit of Rs. 1.5 lakh applied to principal payments.
Q
What deduction is available on pre-construction period interest under the Income Tax Act?
A
Interest on pre-construction loans is deductible in five equal annual installments beginning with the year the residential property is acquired or completed.
Q
What is the maximum tax deduction under Section 24(b) for a self-occupied residence?
A
A maximum tax deduction of Rs. 2 lakh can be claimed yearly if the construction/acquisition of the house is completed within five years.
Q
Is there any specific time limit for completing the construction/acquisition to claim tax benefits under Section 24(b)?
A
Yes, the construction/acquisition of the house should be completed within five years to claim tax benefits under Section 24(b).
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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