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  7. Section 80EE: Deduction for Interest on Home Loan

Section 80EE: Deduction for Interest on Home Loan

Updated on: 23 Mar, 2023 03:27 PM

Bought home for the first time? Avail additional deduction under section 80EE

A first-time buyer of a home has to go through a daunting process that begins with searching for the right dream home that fits the budget and aspirations to the even more grueling steps of availing a home loan. However, this home loan can be beneficial to the first-time buyer-taxpayer. The Income Tax, 1961, under Section 80EE, provides certain criteria that help the taxpayer to claim an additional deduction up to Rs. 50,000/-. This benefit is on the interest paid on the home loan and is not part of Section 80C of the Income Tax Act 1961.

As per the announcement under Budget 2023, when calculating the capital gains tax on the sale of a residential property, the cost of acquisition (i.e., the original purchase price of the property) should not include any home loan interest that the seller claimed as an income tax deduction during the period they owned the property.

Important: e-verify your income tax return within 30 days, else your return will be considered as not filed.

Contents

section 80EE

What is Section 80EE of the Income Tax?

Section 80EE allows Income Tax Benefits on Interest on Home Loan to first-time buyers in the following events:-

  • This deduction will be provided only if the cost of the property acquired is not more than Rs. 50 Lakhs, and the amount of the loan taken is up to Rs. 35 Lakhs.
  • The loan should be sanctioned between 1st April 2016 and 31st March 2017.
  • The advantage of this deduction would be possible until the loan payment continues.
  • This deduction would be accessible from the financial year 2016-17 and onwards.

The above sections connecting to tax benefits on home loans have been abridged under

Particulars Quantum of Deduction (Rs.)
Self-Occupied Property Non-Self Occupied Property
Section 24 (interest) 2,00,000 No Limit
Section 80C (principal) 1,50,000 1,50,000
Section 80EE (interest) 50,000 50,000

Points to Remember

  • The earlier tax deductions are per person and not per home. So in case a taxpayer has acquired a property collectively and has taken a joint home loan, each person repaying the loan amount would be qualified to claim the deduction individually.
  • For declaring the above tax deduction, a taxpayer would be expected to furnish the declaration provided by the bank clearly showing the amount owed and paid towards interest and principal.
  • After declaring the above deductions of tax benefits on home loans, the balance Income of a person would be taxed as per the Income Tax Slab rates.

What are the terms for declaring Section 80EE deductions?

The requirements associated with claiming the deductions under Section 80EE are:

  • The taxpayer should not own any residential house property on the date of loan sanction.
  • The value of the house property should be up to Rs. 50 lakhs.
  • The home loan taken should be up to Rs. 35 lakhs.
  • Section 80EE provides a deduction only for the interest portion of a house loan.
  • The house loan must be sanctioned by a Housing Finance organization or a financial institution.
  • The tax benefit is not available for loans on commercial property for commercial businesses.
  • For claiming deductions under this section, the loan must have been sanctioned between 01.04.16 to 31.03.17.

Who can claim a deduction under section 80EE?

To be qualified for declaring 80EE deductions, a taxpayer must make certain of the points listed below:

  • Individual taxpayers can claim benefits under this section either individually or jointly. If a person has purchased a property contemporaneously with his or her mate and they are both giving the payments of the loan, then both of them can claim this deduction.
    The tax benefit is not available to
    • Association of Persons (AOP),
    • Hindu Undivided Families (HUF),
    • Companies,
    • Trusts, etc.
  • Only first-time home buyers can claim tax benefits under Section 80EE i.e., the assessee does not own any residential house property on the date of sanction of loan. To claim this deduction, the person must have received the loan from a financial institution or a housing finance company.
  • Section 80EE tax benefit is available on a per-person basis and not on the basis of per property.
  • The maximum deduction of Rs 50,000 can be claimed under this section.
  • This tax deduction is over and above the limit of Rs. 2 lakh as per section 24(b).

How to claim tax deductions under section 80EE of the Income Tax Act?

To discover how much one can claim the deduction, here is what requires to be performed:

  • Estimate the total value of interest that is given during a financial year on the house loan.
  • Once the complete interest component paid is determined, claim deduction up to Rs. 2,00,000 (under Section 24(b) of the Income Tax Act, 1961).
  • The surplus amount, up to Rs. 50,000, can be claimed under Section 80EE of the Income Tax Act, 1961.

What will be the total tax benefit under Section 80EE and Section 24?

Tax benefits under section 80EE and section 24 for interest paid on the home loan can be claimed together to the maximum cumulative limit of up to Rs 2,50,000. Which can be bifurcated as under

Section 24 Upto Rs 2,00,000
Section 80EE Upto Rs 50,000
Total Deduction Upto Rs 2,50,000

Also, for availing the tax benefit under both these sections, you first need to use the limit available under section 24 and afterward avail the tax benefit additionally available under section 80EE.

Section 80EE and Section 80EEA

Under the budget 2019, a new section 80EEA was introduced as per which the tax benefits of the interest deduction for housing loans were extended up to Rs 1,50,000 for affordable housing during the period 1 April 2019 to 31 March 2022. The condition behind this was the individual should be a first-home buyer and should not be entitled to a deduction under Section 80EE.

Frequently Asked Questions

Q- Can I claim tax exemption for a property in my wife’s name, for which I am paying full EMI since I am the deemed owner?

In this case, since the co-borrower is not a co-owner of the property, he cannot claim any tax exemption. The only solution to this is if your wife executes a sale deed or gift deed in your favor to include you as a co-owner of the property. To do this, she will need to take approval from the bank. Since you are a co-borrower, the bank should hopefully have no objections.

Q- Can I claim tax exemption on my second house?

The benefit on the second house is not available under section 80EE.

Q- What is the amount of deduction available under section 80EE for A.Y. 2023-24, and onwards?

The amount that can be claimed under section 80EE is Rs. 50000/- for A.Y. 2023-24 in respect of loans taken in FY 2016-17.

Q- Section 80EE states an additional tax benefit of Rs 50,000. Can I claim that every year or is it a one-time claim?

Section 80EE allows income tax benefits on the interest portion of the residential house property loan availed from any financial institution or a housing finance company. You can claim a deduction of up to Rs. 50,000 per financial year as per this section. You can continue to claim this deduction until you have fully repaid the loan.

Q- Can I claim a tax benefit under both section 24 and section 80EE in a single year?

Yes, You can claim a tax benefit under both section 24 and section 80EE in a single year. Tax deduction under Section 80EE of the Income Tax Act 1961, can be claimed by first-time home buyers for the amount they pay as interest on a home loan and the loan must be sanctioned between 01-04-2016 to 31-03-2017. The maximum deduction that can be claimed under this section is Rs. 50,000 during a financial year. The amount can be claimed over and beyond the deduction of Section 24 which is Rs. 2,00,000.

Q- Is Section 80EE of the Income Tax Act applicable to the construction of a house?

As per section 80EE of the Income Tax Act, the income tax deduction for interest on a home loan can be claimed only in respect of home loans taken for the acquisition of residential house property from any financial institution or a housing finance company. Hence, section 80EE is not applicable in the construction of a house.

Q- I didn’t claim the deductions for FY 2016-17 even though I purchased a new property in August 2016. Can I claim the deduction now?

As per section 80EE, there is no such condition that if an assessee didn't claim a deduction of interest on a home loan in FY 2016-17, then he/she can't claim it in the subsequent years. Therefore, you can claim a deduction now also provided your loan repayment is not completed.

Q- What are the features of Section 80EE?

This deduction is only available to individuals who do not own any other house property as of the date of loan sanction and the threshold limit for this deduction is Rs. 50,000

  • Deduction under Section 80EE is available only for individual taxpayers for either self-occupied or other residential property.
  • This deduction of Rs 50,000 can be claimed in addition to the deduction of Rs. 2,00,000 under Section 24.

Q- How is Section 80EE different from Section 24?

Section 80EE is only available to individuals, however, Section 24 applies to HUF also. Section 80EE is only for those who are first-time home buyers, but section 24 is applicable to all house properties.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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