When taking a home loan either through a bank or a financial institution, it is important to understand the home loan tax exemption structure. This is done in order to understand the interest that would be charged on the loan and the manner in which the person would repay the loan amount. Most people have a dream of owning their own home, however, it is the problem of financing the construction of such property.
The Government of India has set up varied schemes under The Income Tax Act 1961 to encourage citizens to purchase homes while offering them tax exemptions. Instead of putting in all the savings that a person has into buying the house, it is advantageous to utilize the funds secured from a home loan. It is because the person obtaining the loan can make the most of the multiple tax benefits, exemptions, and returns through the various offerings that are provided by the Government to home owners.
Under the objective “Housing for all”, the government has now extended the interest deduction allowed for low-cost housing loans taken during the period between 1 April 2019 and 31 March 2020. Accordingly, a new Section 80EEA has been inserted to allow for an interest deduction from AY 2020-21 (FY 2019-20).
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What are the exemptions granted under Section 80EEA of the Income Tax Act?
Section 80EEA of the Income Tax Act has been introduced to further extend the benefits that are allowed under Section 80EE for low-cost housing. Earlier, Section 80EE had been amended from time to time to allow a deduction for interest paid on housing loan for the FY 2013-14, FY 2014-15, and FY 2016-17.
The section does not specify if a person needs to be a Resident to be able to claim this benefit. Therefore, it can be concluded that both Resident and Non-Resident Indians can claim this deduction. The section also does not specify if the residential house should be self-occupied to claim the deduction.
So, borrowers living in rented houses can also claim this deduction. Moreover, the deduction can only be claimed by individuals for the house purchases jointly or singly. If a person jointly owns the house with a spouse and they both are paying the installments of the loan, then both of them can claim this deduction. However, they must meet all the conditions laid down.
The existing provisions of Section 80EE allow for a deduction of up to Rs 50,000 for interest paid by first-time homebuyers for loan sanctioned from a financial institution between 1 April 2016 and 31 March 2017. This deduction can be claimed until they have repaid the housing loan.
Features of section 80EEA of the Income Tax Act are –
- Eligibility criteria – The deduction under this section is available only to individuals. This deduction is not available to any other taxpayer, and cannot be claimed by a HUF, AOP, Partnership firm, a company, or any other kind of taxpayer.
- Amount of deduction – deductions for interest payments up to Rs 1,50,000 is available under this section. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24 of the Income Tax Act. Therefore, it can be seen that taxpayers can claim a total deduction of Rs 3.5L for interest on a home loan if they meet the conditions of section 80EEA.
- Other conditions – In order to claim deduction under Section 80EEA, a person should not own any other house property on the date of the sanction of a loan.
Can I claim Section 80EE every year?
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.
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 a home loan taken for the acquisition of residential house property from any financial institution. Hence, section 80EE is not applicable to the construction of a house.
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.
Who is eligible for Section 80EE?
Section 80EE allows a person to claim income tax benefits on the interest portion of the residential house property loan availed from any financial institution. A deduction of up to Rs. 50,000 per financial year can be claimed as per this section. This deduction can be continued to be claimed until the person has fully repaid the loan amount.
- Eligibility criteria: The deduction under this section is available only to individuals. This means, that a HUF, AOP, a company or any other kind of taxpayer cannot claim any benefit under this section.
- Amount limit: This deduction (up to Rs. 50,000) is over and above the Rs 2 lakh limit under section 24 of the income tax act.
- Other conditions: To claim this deduction, the person should not own any other house property on the date of the sanction of a loan from a financial institution only.
Points to be kept in mind before availing exemptions under Section 80EE of the Income Tax Act –
- The value of the house should be Rs 50 lakhs or less.
- A loan taken for the house must be Rs 35 lakhs or less
- The loan must be sanctioned by a Financial Institution or a Housing Finance Company
- The loan must be sanctioned between 01.04.2016 to 31.03.2017. And, on the date of the sanction of the loan, no other house property must be owned by the person.