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Establishment of Section 80EE

Arun Jaitley while declaring the Budget 2016 re-launched Section 80EE which presents for supplementary deduction of Rs. 50,000 for interest on home loan. This consideration would be covering and above the tax reduction of Rs. 2,00,000 below Section 24 and Rs. 1,50,000 below Section 80C.

Section 80EE: Income Tax Benefit on Interest on Home Loan (First Time Buyers)

This deduction of Section 80EE would be appropriate only in the subsequent events:-
  • This discount will be provided only if the cost of the property acquired is more concise than Rs. 50 Lakhs and the amount of the loan taken are smaller than Rs. 35 Lakhs.
  • The loan should be authorized between 1st April 2016 and 31st March 2017.
  • The advantage of this reduction would be possible till the time the payment of the loan recommences.
  • This deduction would be accessible from fiscal year 2016-17 onwards.
The above sections connecting to tax benefits on home loans have been abridged as under:
Particulars Quantum of Deduction (Rs.)
Self-Occupied Property Non-Self Occupied Property
Section 24 2,00,000 No Limit
Section 80C 1,50,000 1,50,000
Section 80EE 50,000 50,000

Points to Remember

  • The earlier tax deductions are per personage and not per home. So in case a taxpayer has acquired a property collectively and have accepted a joint home loan, each personage repaying the price would be qualified to claim full deduction individually.
  • If a taxpayer is residing in a rented property and are taking tax advantage of HRA contribution, even then they can declare Tax benefit on home loan below Section 24, Section 80C & Section 80EE.
  • For declaring the above tax reductions, 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 discounts of tax benefit on home loan, the remainder Income of a person would be taxed as per the Income Tax Slab costs.

Terms for Declaring Section 80EE Deductions

The requirements associated with declaring deductions below Section 80EE are:
  • This obligation be the initial house that the taxpayer has obtained.
  • The price of the home should be Rs. 50 lakhs or more concise.
  • The home loan taken should be Rs. 35 lakhs or more succinct.
  • Section 80EE provides deduction only for the investment portion of a house loan.
  • The house loan has been approved by a Housing Finance organization or a financial institution.
  • As on the day of the loan sanction, the person must not be holding another home.
  • The credit should not have been taken for commercial businesses.
  • For declaring deductions below this section, the loan will have been authorized 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 has to make certain of the points listed below:
  • Only personal taxpayers can declare deduction below Section 80EE on homes purchased 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 the two can personally claim this discount.
  • E-tax advantages are not appropriate for Association of Persons (AOP), Hindu Unified Families (HUF), companies, conglomerates, etc.
  • First-time residence buyers can only declare tax benefits under Section 80EE. To declare this deduction, the person must have received the loan from a monetary institution for purchasing his/her first household property.
  • Section 80EE is appropriate on a per personage basis moderately than a per property base.
  • To declare this interest, it is not mandatory for the taxpayer to live in the property for which he or she is demanding this deduction. Borrowers residing in rented houses can also declare this deduction.

Claiming 80EE Tax Deductions

A taxpayer can declare deduction below Section 80EE at the time of registering tax repayments. To discover out how much one can declare as a deduction, here is what requires to be performed:

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

Features of the Deduction

The characteristics of Section 80EE are as beneath:

  • Specific taxpayers can only insist on the deduction below Section 80EE on properties acquired either individually or jointly. It is not suitable for Association of Persons (AOP), Hindu Unified Families (HUF), businesses, trusts, etc.
  • The maximum reduction that can be declared under this segment is Rs. 50,000 during a fiscal year.
  • The conclusion that can be claimed is above and surpassing the limit of Rs. 2,00,000, as below Section 24 of the Income Tax Act.
  • The assets can be both occupied by the taxpayer or non-self-occupied.

Section 80EE and Section 24

A discount can be declared for interest on home loan below Section 24 of the Income Tax Act, 1961. The deadline under this segment is Rs. 2,00,000. This discount can only be demanded if the landlord or his or her family members live in the house property. The undivided interest shall be dismissed off as a reduction in case the home is on rent.

If an individual can satisfy the requirements of both the segments that are Section 80EE and Section 24, the individual can take benefits below the two. To do so, the person will first need to deplete the limit under Section 24 and then declare the additional compensation under section 80EE. Therefore, the reduction under Section 80EE is an enhancement to the boundary of Rs. 2,00,000, as below Section 24.

Frequently Asked Questions (FAQs)

Q - Should all co-borrowers take insurance on home loan? Does it cover full loan burden?

Yes, it is best if all co-borrowers take insurance while taking home loan as in the case of any untoward incident the other co- borrowers will get burdened with paying their share of the EMI too. A loan cover will take care of their EMIs. You can take insurance while completing the documentation formalities of your loan before disbursement. There are different kinds of loan insurance covers. While some safeguard your family or other co-borrowers from paying the outstanding loan amount, others safeguard you against damages to property or burglary. Based on your preferences you can choose an insurance policy.

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 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 favour to include you as a co- owner in the property. To do this, she will need to take approval from the bank. Since you are a co-borrower, the bank should hopeful have no objections.

Q - Will buying a second home reduce my taxes?

You can rent your second home to other parties for up to two weeks (14 nights) within a year without having to report the resulting income to the IRS. The house is still considered a personal residence, and you can deduct mortgage interest and property taxes under the standard second-home rules. For any further assistance, you can contact our expert e-CA’s.

Q - Can I claim tax benefit for under construction property?

For under construction property before possession. According to Section 24 of the Income Tax Act, you can claim a deduction against the interest amount that you have paid on your residential property during the pre-construction period. Total allowable deduction stands capped at Rs. 2 lakh per year for self-occupied house.

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

Yes, you can avail of tax benefit on the second house by claiming it as self-occupied. If you own two houses, you can claim only one as self-occupied, while the other will be considered as let-out property. However, you will be allowed to deduct the interest on a home loan from the notional rent. To save tax, try investing in your spouse's name if he/she does not owns other residential property.

Q - What is the amount of deduction available under section 80EE for A.Y. 2019-20 onwards?

The amount that can be claimed under section 80EE is Rs. 50000/- for A.Y. 2019-20 onwards

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?

Ans: Section 80EE allows income tax benefits on the interest portion of the residential house property loan availed from any financial institution. 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 - What documents do I need to provide to claim housing benefits?

Ans: Documents you need to provide to support your Housing Benefit claim :

  • Proof of identity.
  • Proof of National Insurance number.
  • Proof of rent (unless you are a council tenant)
  • Proof of earnings.
  • Proof of benefits, allowances, pensions and other income.
  • Proof of capital (for example bank accounts, savings and investments)
  • Proof of money paid out.

Q - Can I claim a tax benefit under both section 24 and section 80EE in a single year? I bought my first house last year.

Ans: 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 home loan. 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 in the Income Tax Act applicable in the construction of a house?

Ans: As per section 80EE of the Income Tax Act, income tax deduction for interest on home loan can be claimed only in respect of home loan taken for acquisition of residential house property from any financial institution. 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?

Ans: As per section 80EE , there is no such condition that if an assessee didn't claim deduction of interest on home loan in FY 2016-17, then he/she can't claim it in the subsequent years. Hence if the assessee fulfills all the conditions i.e. :

Q - What are the conditions associated with claiming deduction under Section 80EE?

Ans. To avail deduction under Section 80EE , the house property purchased should not be more than INR 50 lakhs and loan is taken only for INR 35 lakhs or less and it is approved by FIs and on that no other house is under your name.

Q - Who is eligible to avail tax benefits under Section 80EE?

Ans. All those taxpayers are eligible for Section 80EE who does not own any other house except the purchased property which should not be of value more than INR 50 lakhs and loan amount is not more than INR 35 lakhs

Q - How to claim tax deductions under Section 80EE?

Ans. To know the solution for this, you need to have a look on above FAQ

Q - What are the features of Section 80EE?

This deduction is only available to individuals who does not own any other house property as on date and threshold limit for this deduction INR 2 lakh

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

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

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CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of 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.