The Indian Income Tax Act provides a tax deduction of up to Rs. 1.5 lakhs per financial year for interest paid on home loans taken for purchasing or constructing an affordable house.
This deduction is available under Section 80EEA of the Income Tax Act and is in addition to the existing tax benefits available under Section 80C and Section 24. Let's understand the regulations and conditions associated here.
What is Section 80EEA
Under Sec 80EEA of Income Tax Act, one can claim a deduction for the interest required to be paid on the housing loan.
Note that the taken-out loan should have been used for acquiring a residential house. The construction of a residential house is not covered in this section. Section 80EEA allows deductions up to ₹ 1,50,000 per financial year. A deduction can be claimed under this section until the loan is completely repaid.
Eligibility Criteria to Claim Deduction under Section 80EEA
To be eligible for this particular home loan interest deduction section, the following conditions must be met-
- The home loan must be taken from a financial institution or housing finance company.
- The loan must be taken for purchasing or constructing a residential property valued at Rs. 45 lakhs or less.
- The loan must be sanctioned between 1st April 2019 and 31st March 2020.
- The individual must not own any other residential property at the time of loan sanction.
- The individual must not have claimed any other deduction for the same year for interest paid on the home loan.
The benefit of this deduction is available for a maximum of 5 years starting from the financial year in which the loan is sanctioned. The deduction can be claimed by the individual paying the interest on the home loan and not by the co-borrowers or co-owners of the property.
Conditions to Fulfil for Claiming the Deduction under Section 80EEA
Here are some of the significant conditions required to fulfil to claim 80EEA deduction-
- Eligibility: The deduction under Section 80 EEA is available to individuals who have taken a home loan for an affordable housing project.
- Maximum Deduction: The maximum deduction available under this section is Rs. 1.5 Lakhs.
- Time Period: The 80EEA exemption can be availed for 5 consecutive financial years starting from the year the loan was taken.
- Home Loan Amount: The home loan amount should be less than Rs. 35 Lakhs, and the property's value should be less than Rs. 45 Lakhs.
- Interest Payment: The deduction is available for the interest paid on the home loan and not for the principal repayment.
- New Construction: The property should be new, not a resale or pre-owned property.
- Additional Benefit: The tax deduction under Section 80 EEA can be claimed in addition to Section 24 for interest paid on the home loan.
- No Ceiling Limit: There is no ceiling limit on the individual's income to claim the deduction under this section.
- No Carry Forward: The unclaimed deduction under this section cannot be carried forward to the next financial year.
- Who can Avail: The benefit of this section is available only to first-time home buyers. It means that if the individual has already availed the benefit of any other section in respect of any other property, he shall not be eligible for the benefit under this section.
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Tax Deductions for Stamp Duty and Registration Charges
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- You can claim tax deductions for Stamp duty and registration fees under Section 80C. But note that it must be under the entire limit of Rs 1,50,000, applied to principal payments.
- This benefit can be availed only in the year in which the expenses are incurred.
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Tax Deductions on Interest Paid for Properties Under Construction
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- As per the regulations, deduction of both pre-construction and post-construction period interest is allowed.
- The interest on pre-construction loans is deductible in 5 equal annual instalments starting with the year the residential property was completed/acquired.
Therefore, the total interest deduction permitted to an individual taxpayer under Section 24(b) is one-fifth of the interest relating to the pre-construction period (if there is any), along with interest related to the post-construction period (if there is any).
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Tax Deduction on Home Loans Under Section 24B
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- By using Section 80EEA, an individual is permitted to claim a deduction under Section 24B for the interest paid on home loans.
- This section undertakes the general provisions associated with the deduction on home loan interest. Note a maximum deduction of Rs 2,00,000 can be claimed from the gross income yearly for a self-occupied residence, given the acquisition or construction of the house is concluded within 5 years.
- If you meet the conditions of both Section 24 and Section 80EEA, you are eligible to claim the benefits under both sections.
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Tax Benefits on Joint Home Loan
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- If an individual happens to take out a home loan jointly, each of the borrowers is eligible to claim a deduction for home loan interest up to the limit of Rs 2,00,000 under Section 24(b) and also a deduction for principal repayment up to Rs 1,50,000 under Section 80C of the Income Tax Act.
- Note that both applicants should be co-owners of the property and serve the EMIs to claim such deduction.
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Tax Benefits on Second Home Loan
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- If an individual takes out a loan for a second house, he/she can avail of the same benefits, however, the entire amount of deductions is subject to the regulations.
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In summary, the 80EEA deduction of Income Tax Act is a welcome move by the government to provide additional tax benefits to individuals purchasing or constructing an affordable house. This will encourage more people to invest in the housing sector and help achieve the government's 'Housing for All' goal.