Section 80EE of Income Tax Act: Deduction for Interest on Home Loan

What is Section 80EE of the Income Tax Act?

Section 80EE offers tax relief to taxpayers who have taken out a home loan. It allows home buyers to take income tax benefits on the interest they need to pay on a home loan.

As per this section, a deduction of up to Rs. 50,000 per financial year can be claimed. This deduction can be claimed only if the taxpayer opts for the old tax regime.

*The home loan must be sanctioned between 1st April, 2016, and 31st March, 2017.

To claim deductions under Section 80EE, you should file your tax return. The last date to file tax returns for FY 2023-24 is 31st July 2024. File early and claim your refunds. File Today

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What are the features of Section 80EE deduction?

Section 80EE allows Income Tax Benefits 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 2022
• 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 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.

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What are the conditions for claiming Section 80EE deductions to be met?

• 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 31.03.2022

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Eligibility for claiming a deduction under section 80EE

• 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).

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Who Cannot Access Tax Benefits Under Section 80EE?

• Association of Persons (AOPs): Tax benefits under Section 80EE do not apply to associations of persons (AOPs), including entities like partnerships or organizations that are not individual taxpayers.
• Hindu Undivided Families (HUFs): HUFs are excluded from claiming tax benefits under Section 80EE. The deduction is limited to individuals only.
• Trusts: Trusts, whether private or public, cannot access the benefits under Section 80EE, as it is reserved for individuals.
• Property Ownership Through Spouse: Even if the property is jointly financed or purchased with a spouse, the tax benefit can only be claimed if the spouse is a co-borrower or nominated as a co-owner in the property. If the property is solely owned by the spouse, tax benefits cannot be claimed by the other party, even if they contribute to the loan repayment.

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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.

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How to Claim House Loan Interest in ITR?

Here's a step-by-step guide to help you claim the house loan interest in your ITR:

Collect Loan Documents:

Gather all the relevant documents related to your housing loan. This includes the loan agreement, interest certificate, and details of the principal and interest components paid during the financial year.

Determine Tax Deductions:

As a homeowner, you can claim tax deductions on the interest paid on your housing loan under Section 24(b) of the Income Tax Act. The maximum deduction allowed is up to Rs. 2 lakh per financial year for a self-occupied property. If the property is rented out, there is no maximum limit on the deduction, and you can claim the entire interest amount.

Form 16 or Interest Certificate:

If you are a salaried individual and have a home loan, your employer will provide Form 16, which contains details of the interest paid on the housing loan during the financial year. If you are not a salaried individual, your lender will issue an interest certificate reflecting the interest paid.

Fill ITR Form:

Use the appropriate ITR form based on your income sources and financial status. For most individuals with salary income and house loan interest, ITR-1 or ITR-2 is usually applicable.

Enter Interest Amount:

In the ITR form, look for the section where you can claim deductions for interest on housing loan (Section 24(b)). Enter the amount of interest paid during the financial year. Ensure the amount matches with the figure mentioned in Form 16 or the interest certificate.

Check for Pre-Construction Interest:

If you have availed a loan for an under-construction property, you can claim a deduction on the pre-construction interest under Section 24(b). This deduction can be claimed in five equal installments starting from the year of completion of the property.

Submit ITR:

After filling in all the relevant details, verify the information, and submit your ITR online through the Income Tax Department's e-filing portal or Tax2win.

Keep Documents Safe:

Retain all the supporting documents related to your housing loan, such as loan statements, interest certificates, and property possession certificate, as you may need to produce them during an income tax audit.

File Your Income Tax Return Here.

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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

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.

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Difference Between 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.

Home loan interest can be a big deduction on your taxes. But do you know how to claim it correctly? A tax professional can help you avoid mistakes and get the highest refund possible. Book eCA today

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