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Section 80EEA of Income Tax Act: Deduction for interest paid on home loan
Budget 2023 Update
In the Budget 2023; a proposal was made regarding calculating capital gains from the sale of a residential property. According to the proposal, the cost of acquisition to calculate capital gains will no longer include any home loan interest claimed as an income-tax deduction by the seller during the holding period of the property. This proposal intends to provide a more accurate reflection of the actual cost incurred by the seller in acquiring the property.
In the Budget of 2019, Finance Minister Nirmala Sitharaman introduced a significant vision of promoting "Affordable Housing." As a part of this initiative, Section 80EEA was introduced, providing an additional tax benefit through a deduction on home loan interest for first-time homebuyers starting from the financial year 2019-20.
To provide interest deduction on home loans, section 80EEA has been introduced. The older provision of Section 80EE allowed a deduction of up to Rs 50,000 for interest paid by first-time home-buyers for loans sanctioned from a financial institution between 1 April 2016 and 31 March 2017. To further provide the benefit to the real estate sector, the government has extended the benefit for FY 2019-20. This deduction can be claimed until you have repaid the housing loan.
What is Section 80EEA of income tax?
Section 80EEA of the Income Tax Act, 1961, provides an additional deduction on home loan interest for first-time homebuyers of affordable housing. Here are the key provisions of Section 80EEA:
- Eligibility: The deduction 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.
Tax benefits on Home Loan FY 2022-2023
The deduction amount available under this section shall be calculated in the following manner:
Actual Interest payment or
(whichever is lower)
This deduction is available over & above exemption u/s 24 provided other conditions satisfied.
Example: A has taken a home loan during FY 2019-20. The stamp duty value of the house is Rs. 50 lakh. The total interest payment made during the year is Rs. 2,55,000/-. Whether A is eligible to claim a deduction under section 80EEA?
In the above example, the stamp duty value of the house exceeds Rs. 45 lakh hence A is not eligible to claim a deduction under section 80EEA.
However, A can claim an exemption of interest u/s 24 of Rs. 2,00,000/-
Example: A has taken a home loan. Given below are the information:
|Total Interest||Loan taken during||Deduction u/s 24||Deduction u/s 80EE||Deduction u/s 80EEA|
Now, we will discuss what the other sections under which deduction of interest paid on a home loan is available are:
Section 24: Under this section, exemption of interest payment on home loan maximum upto Rs. 2,00,000 under house property income is available subject to certain conditions.
Section 80EE: Deduction on a home loan's interest under this section is available. The maximum deduction available as per this section is Rs. 50,000/- subject to certain conditions:
- The house's value should be up to Rs. 50 lakh
- Loan amount should not exceed Rs. 35 lakh
- Loan must be sanctioned between 01-April-2016 to 31-March-2017
Tax benefits on second home loan
Taxation rules for a second home loan depends on the purpose of your purchase.
When one of your houses is on rent:
- The income generated from renting your house is typically taxable according to the Income Tax Act.
- You can claim standard deductions @ 30% for expenses related to the maintenance or repair of your rented property.
- You can also claim tax deductions on the interest paid on the loan for your second home. There is usually no cap on the interest deduction based on the property's construction status.
When both houses are not rented:
- If you do not rent out either of your properties, the government may not consider them both as "self-occupied."
- You can choose to treat one house as your "self-occupied property" and the other as "deemed rented out."
- For the property categorized as "deemed rented out," you would need to pay tax on the assumed rental income, even if you are not actually renting it out.
- The location of your house may influence the assumed rent amount and the payable tax.
When both houses are on rent:
- If you decide to rent out both of your properties, you will need to pay tax on the income generated from renting out both properties.
- However, you may be able to avail tax benefits on the interest paid on the loan for your second home under Section 24 of the Income Tax Act.
Tax benefits on joint home loan
Tax benefits on a joint home loan can vary depending on the ownership structure and the purpose of the loan. Here are some key points to consider:
- Co-ownership of the property: If you have taken a joint home loan with one or more co-borrowers, each co-owner can claim tax benefits individually, subject to certain conditions. The tax benefits are available based on the share of ownership in the property. The maximum deduction allowed remains the same as for an individual borrower.
- Tax benefits on interest repayment: As per the Income Tax Act, you can claim a deduction on the interest portion of the home loan repayment under Section 24(b). The maximum deduction allowed is up to INR 2 lakh per financial year for a self-occupied property. This deduction can be claimed individually by each co-borrower, based on their share of ownership.
- Tax benefits on principal repayment: The repayment of the principal amount of the home loan is eligible for a deduction under Section 80C of the Income Tax Act. The maximum deduction limit is up to INR 1.5 lakh per financial year. This deduction can also be claimed individually by each co-borrower based on their share of ownership.
- Stamp duty and registration charges: If the joint property is registered in the names of all the co-borrowers, each co-borrower can claim a deduction on the stamp duty and registration charges paid under Section 80C, subject to the overall limit.
Eligibility Criteria to Claim Deduction under Section 80EEA
Deduction under Section 80EEA is not available to HUF, AOP, BOI, Partnership firm or any other taxpayer except Individual assessee.
What are the conditions to claim deduction u/s 80EEA?
Deduction u/s 80EEA is available subject to the given below conditions:
- The stamp duty value of residential houses shall be up to Rs. 45 lakh.
- The loan is taken from a financial Institution*.
- The loan has been sanctioned between 01-04-2019 to 31-03-2020.
- Assessee is not claiming any deduction under section 80EE.
- The assessee owns no residential house property on the date of sanction of loan.
Apart from all above conditions, there is one additional condition related to carpet area which is not given under section 80EEA but is given in memorandum to the finance bill :
Carpet areas should not exceed 60 square meters in metropolitan cities (Bengaluru, Chennai, Delhi, Noida, 12 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.
How is the Deduction Calculated Under Section 80EEA?
Let's consider an example to understand how the deduction is calculated under Section 80EEA:
Assume that you are a first-time homebuyer who has taken a home loan for the purchase of a residential property. The loan is sanctioned by a financial institution between 1st April 2019 and 31st March 2022. The stamp duty value of the property is within the limit of INR 45 lakhs.
Here are the details of your home loan:
Loan amount: INR 40 lakhs Interest rate: 8% per annum Loan tenure: 20 years
To calculate the deduction under Section 80EEA, you need to determine the interest payable on the loan during the financial year. Let's assume the interest payable for the first financial year is INR 3.2 lakhs.
Now, let's calculate the deduction under Section 80EEA:
The maximum deduction allowed under Section 80EEA is up to INR 1.5 lakhs per financial year.
In this case, the interest payable on the loan is INR 3.2 lakhs. Since the interest payable exceeds the maximum deduction limit of INR 1.5 lakhs, you can claim the maximum deduction of INR 1.5 lakhs under Section 80EEA.
It's important to note that the deduction under Section 80EEA is available for a maximum of up to INR 1.5 lakhs per financial year until the repayment of the loan or until the interest is fully paid, whichever is earlier.
What is the difference between Section 80EEA & Section 24?
|Section 80EEA||Section 24|
|Sec- 80EEA does not impose any possession requirement; as soon as you start your interest payment, you can claim for exemption.||To claim deduction u/s 24, you must have possession of your house; on the other hand|
|In the case of Section 80EEA only allows home loans taken from banks and financial institutions only.||If a loan is taken from friends or relatives and interest is paid to them, is also allowed for exemption u/s 24.|
|Maximum deduction available Rs. 1,50,000/-||Maximum deduction available Rs. 2,00,000/-|
Conditions to claim the deduction:
||No such conditions exist|
What is the difference between Section 80EEA & Section 80EE?
|Section 80EEA||Section 80EE|
|Stamp duty value of a house should be up to Rs. 45 lakh||Value of a house should be Rs 50 lakh or less.|
|Loan should be sanctioned from 01-April-2019 to 31-March-2020||Loan should be sanctioned from 01-April-2016 to 31-March-2017|
|Maximum deduction available is Rs. 1,50,000/-||Maximum deduction available is Rs. 50,000/-|
|There is no limit on the value of the land.||Value of the land should not be more than Rs. 35 lakh.|
Meaning of important terms u/s 80EEA
What is the meaning of “ Financial Institution” used u/s 80EEA?
- A banking company to which the Banking Regulation Act applies, or
- Any bank or banking institution referred to in section 51 of that Act, or
- A housing finance company
What is the meaning of “ Stamp Duty Value” used u/s 80EEA?
Value adopted or assessed or assessable by
- any authority of the Central Government or
- a State Government
for the purpose of payment of stamp duty in respect of the immovable property.
What is the meaning of “ carpet area” used u/s 80EEA?
Carpet area refers to the actual area that can be used.
it means the area on which 'a carpet' can be put. It does not include the area of walls and ducts.
Frequently Asked Questions
Q- Can I claim interest payment deduction on a home loan u/s 80EE & 80EEA simultaneously?
No, one of the conditions for claiming deduction u/s 80EEA is that you are not claiming deduction u/s 80EE.
Q- What evidence do I need to submit to my employer while submitting Form 12BB?
Interest certificates from banks may be submitted to the employer.
Q- Can I claim a deduction of interest payment on the electric vehicle loan also u/s 80EEA?
No, 80EEA provides a deduction for interest payments on the home loan. Deduction for interest payment on a vehicle loan is available u/s 80EEB.
Q- Can I claim deduction u/s 24 & 80EEA simultaneously ?
Yes, deduction under both the sections can be claimed simultaneously subject to other conditions.
Q- For how many years deduction u/s 80EEA is available?
Deduction u/s 80EEA can be claimed till repayment of home loan
Q- Can I claim deduction of principal repayment on home loan u/s 80EEA ?
No, 80EEA only provides deduction of interest payments. However, repayment of principal amount on home loan can be claimed u/s 80C upto Rs. 1,50,000/-.