Section 80EE - Income Tax Deduction for Interest on Home Loan

Section 80EE of the Income Tax Act allows first-time homebuyers to claim an additional deduction of up to Rs. 50,000 per year on interest paid on home loans sanctioned between FY 2016-17. To qualify, the property value must not exceed Rs. 50 lakh, and the loan amount must be Rs. 35 lakh or less. This benefit is available in addition to Section 24(b) and applies only under the old tax regime.

Key-Takeaways
Additional Deduction: Allows up to ₹50,000/year interest deduction on home loans for first-time homebuyers, over and above Section 24(b)’s ₹2,00,000 limit.
Eligibility: Only for individual taxpayers (resident or NRI) who own no other residential property on the loan sanction date; property must be in India.
Loan & Property Limits: Property value ≤ ₹50 lakh, loan amount ≤ ₹35 lakh, sanctioned by a bank or housing finance company.
Timeframe & Regime: Loan must be sanctioned between 1 April 2016 and 31 March 2017; available only under the old tax regime.
 

What is Section 80EE Deduction?

Section 80EE allows a claim deduction of interest for home loans paid by eligible Individuals as first-time homebuyers, meaning those who do not own any other residential property on the date of loan sanction. This deduction is an additional interest deduction of up to ₹50,000 per year on a housing loan, in addition to the deduction under Section 24(b). 

Taxpayers can claim interest on a home loan up to Rs. 2,00,000 for the purchase or construction of a residential house under section 24(b) and an additional deduction of interest up to Rs. 50,000 under section 80EE. However, the total deduction under Sections 24(b) and 80EE cannot exceed the actual interest paid during the relevant financial year. The loan must be sanctioned by a bank or a housing finance company.

Key Conditions: To Claim Deduction Under Section 80EE

Conditions to claim Section 80EE deduction are given below:

• Applicability: Available only to individual taxpayers (resident or NRI). HUFs, AOPs, BOIs, firms, companies, and other entities are not eligible.
• Eligibility: Available only to first-time home buyers. The property must be located in India and can be either self-occupied or let out.
• Maximum Deduction: Up to ₹50,000 per year.
• Loan Criteria: The loan must be sanctioned between 1 April 2016 and 31 March 2017.
• Property Value Limit: The property value should not exceed ₹50 lakh.
• Loan Amount Limit: The loan amount must not exceed ₹35 lakh.
• Tax Regime: Deduction is available only under the old tax regime.
• Co-owned Property: If co-owners jointly own the property, pay EMIs, and meet all conditions, each co-owner can claim the deduction individually.

Deduction Limit u/s 80EE

• The deduction is up to Rs 50,000 Per Annum.
• It is over and above the Rs 2 lakh limit under Section 24 of the Income Tax Act. 

Note: If you can satisfy the conditions of both Section 24 and Section 80EE of the Income Tax Act,

• First, exhaust your deductible limit under Section 24, Rs 2 lakh.
• Then go on to claim the additional benefits under Section 80EE.

Illustration

 Rahul paid Rs 2.40 Lakh as home loan interest this year and satisfied all the conditions of section 80EE.

• He claims Rs 2 Lakh deduction under Section 24 (max limit).
• He then claims the remaining Rs 40,000 under Section 80EE (up to Rs 50,000 allowed).

Total deduction = Rs 2,40,000

Documents Required to Claim Deduction under Section 80EE

To claim a deduction under Section 80EE, the following documents are required:

• Interest certificate from the bank or housing financial company, clearly specifying the principal and interest components of the relevant financial year.
• Home loan sanction letter obtained from the bank/housing financial company.
• Loan agreement
• Property documents confirm that the property's value does not exceed Rs 50 lakhs.

Note: It is advisable to retain these supporting documents for verification purposes.

Example Scenarios for Section 80EE Deduction

1. First-Time Homebuyer Eligibility

Sunita is buying her first home in India. The property value is Rs 45 lakhs, and her home loan is Rs 30 lakhs, sanctioned on January 15, 2017. Since Anita meets the first-time buyer condition, property value and loan amount limits, she can claim the Section 80EE deduction for interest amount paid up to Rs. 50,000 for the financial year.

2. Loan Sanction Date

Rahul took a home loan for Rs 33 lakhs on February 21, 2017. Because the loan was sanctioned between April 1, 2016, and March 31, 2017, Rahul qualifies to claim up to Rs 50,000 extra deduction under Section 80EE (subject to other conditions).

3. Property Value Limit

Sonia purchased her first home worth Rs 52 lakhs in 2016 with a loan of Rs 30 lakhs. She cannot claim Section 80EE deduction since the property value exceeds Rs 50 lakhs.

4. Loan Amount Limit

Ajay bought his first home for Rs 48 lakhs and took a loan of Rs 38 lakhs in 2016. Ajay cannot claim Section 80EE deduction as the loan amount exceeds the Rs 35 lakh limit.

5. Resident and Non-Resident Individuals

Neha, an NRI, took her first home loan for Rs 25 lakhs in 2017 for a residential property valued at Rs 45 lakhs. Neha can claim the Section 80EE deduction just like a resident Indian.

6. Co-owners Claiming Deduction

Two friends jointly purchase their first home, each taking a loan of Rs 15 lakhs (total Rs 30 lakhs), and the property value is Rs 40 lakhs. Both can individually claim up to Rs 50,000 under Section 80EE if they meet all other conditions.

7. Combined Deduction under Sections 24 and 80EE

Rohan paid interest of Rs 2.40 Lakh in a year on a home loan. He claims Rs 2 Lakh under Section 24(b) (max limit) and the remaining Rs 40,000 under Section 80EE (max Rs 50,000).

Total deduction claimed = Rs 2,40,000.

Section 80EE and Section 24(b): How They Work Together

Section 24(b) of the Income Tax Act allows a claim for a deduction of interest paid for up to Rs. 2 Lakh on a home loan taken for the purchase or construction of property, whether self-occupied or let out. This deduction is available under the head Income from House Property.

Section 80EE comes into play when the taxpayer's total interest payment exceeds the Rs.2,00,000 limit under section 24(b). Under this section, if the taxpayer meets all the eligibility criteria, then the taxpayer can claim an additional deduction of interest for up to Rs. 50,000 paid on a home loan taken from a bank or a housing finance company for the first residential property purchase for self-occupation. This deduction is over & above the section 24(b).

Comparison Table: Section 24(b) vs Section 80EE

Here’s the comparison table for Section 80EE vs Section 24(b)

Section 80EE and Section 80EEA

The Union Budget 2019 has introduced a new Section 80EEA to extend the tax benefits of the interest deduction up to Rs 1,5 Lakh for housing loans taken for affordable housing during the period 1 April 2019 to 31 March 2022. The individual taxpayer should be a first-home buyer and should not be entitled to a deduction under Section 80EE.

The difference between Section 80EE & section 80EEA can be understood with the help of the below table:

*Deduction is allowed only if the loan was borrowed during the said periods.