Section 80EE Income Tax Deduction for Interest on Home Loan

Budget 2021 update :It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.

1. Features of the 80EE Deduction

a. Eligibility criteria: The deduction under this section is available only to individuals. This means, if you are a HUF, AOP, a company or any other kind of taxpayer, you cannot claim any benefit under this section. b. 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. Read more about deduction of Rs 2 lakh on interest on home loan here. c. Other conditions: To claim this deduction, you should not own any other house property on the date of the sanction of a loan from a financial institution only.

2. Conditions to be Met for Claiming Deduction

• Value of the house should be Rs 50 lakhs or less
• 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
  • As on the date of the sanction of loan, no other house property must be owned by you.

Section 80EE came into effect from the financial year 2013-14. It was available for only 2 years, FY 2013-14 and FY 2014-15. The deduction allowed earlier was limited to a maximum of Rs 1 lakh in total and was available for only 2 financial years. However, this section has been reintroduced, effective FY 2016-17 (AY 2017-18). Now the deduction is allowed for up to Rs. 50,000 per year until the loan is repaid. The Section does not specify if you need 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 this 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 instalments of the loan, then both of them can claim this deduction.  

3. Section 80EE and Section 24

If you are able to satisfy the conditions of both Section 24 and Section 80EE of the Income Tax Act, be quick to claim the benefits. First, exhaust your deductible limit under section 24, which is Rs. 2 lakh. Then go on to claim the additional benefits under section 80EE. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under section 24.

3. 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 1,50,000 for housing loan taken for affordable housing during the period 1 April 2019 to 31 March 2020. The individual taxpayer should be a first-home buyer and should not be entitled to deduction under section 80EE.