Income Tax Section 80EEA: Home Loan Interest Deduction

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 on affordable housing. The interest should be paid on a loan taken to purchase a residential house property. However, the construction of a residential house is not considered for Section 80EEA deduction eligibility. Under Section 80EEA, you can claim a deduction of upto Rs.1,50,000 during an FY, until the loan is completely repaid.

Features of Section 80EEA Income Tax

Here are the key provisions of Section 80EEA:

1. 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.
2. Maximum Deduction: The Section 80EEA deduction eligibility is limited to a maximum amount of Rs. 1.5 lakh per financial year.
3. 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.
4. 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.
5. Time Limit: The deduction can be claimed for home loans sanctioned by financial institutions between 1st April 2019 and 31st March 2022.
6. 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.

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Section 80EEA Deduction Eligibility

Deduction under Section 80EEA is only eligible for individuals and not available to HUF, AOP, BOI, Partnership firm, or any other taxpayer except the Individual assessee. Moreover, the taxpayer needs to opt for the old tax regime to avail of deduction under this section, this deduction is not available under new tax regime.

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Tax Benefits on Home Loan FY 2024-25

The deduction amount available under this section shall be calculated in the following manner:

Actual Interest payment or
Rs. 1,50,000/-
(whichever is lower)

This deduction is available over & above exemption u/s 24, provided other conditions are 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 as per 80EEA deduction eligibility?

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 is the information:

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

Note:- In order to claim a deduction under Section 80EEA, you should not own any other house property on the date of the sanction of a loan.

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Tax Benefits on Second Home Loan

Taxation rules for a second home loan depend 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.

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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 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.
• 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 Section 80EEA 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.

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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 or a housing finance company.
• The loan has been sanctioned between 01-04-2019 to 31-03-2022.
• Assessee is not claiming any deduction under section 80EE.
• The assessee owns no residential house property on the date of sanction of the loan.

Note: This deduction is allowed for a maximum of 5 years beginning from the financial year in which the loan is sanctioned. Also, the deduction can only be claimed by the person paying the interest and not by the co-borrowers or co-owners of the property.

Apart from all the above conditions, there is one additional condition related to carpet area, which is not given under section 80EEA eligibility but is given in the memorandum to the finance bill :

Eligibility Conditions Regarding the Carpet Area

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.

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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.

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Points to be Considered to Claim Section 80EEA

Section 80EEA extends the benefits of Section 80EE for low-cost housing.

• Eligibility: The section does not require the claimant to be a resident, meaning both Resident and Non-Resident Indians (NRIs) can avail of this deduction.
• No Need to be Self-occupied: There is no requirement for the house to be self-occupied, so borrowers living in rented accommodations can also claim the deduction.
• Joint or Single Ownership: The deduction applies to both single and joint ownership. If a couple jointly owns the house and has taken the loan together, both can claim the interest deduction, provided they meet all specified conditions.

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What is the Difference Between Section 80EEA & Section 24?

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Key Difference Between Section 80EEA & Section 80EE?

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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

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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.

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Tax Deductions for Stamp Duty and Registration Charges

Stamp duty and registration fees are eligible for tax deductions under Section 80C of the Income Tax Act, subject to the overall limit of ₹1.5 lakh, which also includes principal repayments. This benefit can be claimed even if you do not take a home loan. However, it is important to note that this deduction is only applicable in the financial year when the expenses are incurred.

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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.

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Deductions Under Section 24(b)

Fully Constructed Properties

• You can claim deduction of the interest paid on your home loan.
• You can claim a maximum of Rs.2 lakhs as deduction from your income for a self-occupied house, provided the construction of the house is completed within 5 years.
• If you satisfy the conditions fpr claiming deductions under both section 24(b) and 80EEA, you can claim benefits under both sections.

Properties Under Construction

• The income tax allows for the deduction of interest paid both before and after the construction.
• Interest on pre-construction loans can be deducted in five equal annual installments starting from the year the property is acquired or completed.
• The maximum deduction allowed under Section 24(b) is 1/5th of the pre-construction interest (if any) plus the post-construction interest (if any), subject to a maximum limit of ₹2,00,000.

If you have taken any home loan and want to claim a deduction for interest on the home loan under section 80EEA, consider consulting a tax professional as he/she can help you maximize your tax deductions and e-file your income tax return. Book an Online CA Now!

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