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

Purchasing a home is a significant financial milestone for most of the tax payers. Section 80EE provides additional tax benefits for first time home buyers. On satisfaction of certain conditions, a deduction of up to Rs 50,000 can be claimed under this section. This article explains in detail about meaning, eligibility criteria, exemption limit and documents required to claim deduction under section 80EE.

What is Section 80EE Deduction?

Section 80EE provides a deduction for interest paid on home loans under the following conditions:

• Eligibility: Available only to first-time homebuyers.
• Maximum Deduction: Up to Rs. 50,000 per year.
• Loan Criteria: The loan must be sanctioned between April 1, 2016, and March 31, 2017.
• Property Value Limit: The value of the property should not exceed Rs. 50 lakh.
• Loan Amount: The loan amount must not exceed Rs. 35 lakh.

Eligibility Criteria to Claim Deduction u/s 80EE

• The deduction under this section is available only to individuals. HUF, AOP, a company, or any other taxpayer cannot claim section 80EE deduction.
• Deduction u/s 80EE is available only for the purchase of first residential property.
• The loan must be sanctioned by a financial institution or a housing finance company
• The loan should have been availed between April 1 2016 to 31st March 2017.
• The value of residential property should not exceed Rs 50 lakhs.
• The amount of loan sanctioned should not exceed Rs 35 lakhs
• This deduction can be claimed only when the assessee has opted for old tax regime.

Deduction Limit u/s 80EE

• The deduction is up to Rs 50,000. 
• 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.

Things to Remember

• Even Non-Resident Individuals can claim deduction under this section.
• Deduction can be claimed for both self occupied and let out property as long as it is residential.
• It is nowhere explicitly mentioned that residential property should be purchased in India. But considering the intent of introducing this section, it is allowed only when the residential property is purchased in India.
• If a person jointly owns the house with a someone else and they both are paying the instalments of the loan, then both of them can claim this deduction.

Documents Required to Claim Deduction under Section 80EE

To claim a deduction under Section 80EE, it is advisable to retain the following supporting documents for verification purposes.

• Interest certificate for the year, clearly specifying the principal and interest components of the financial year.
• Home loan sanction letter obtained from the bank.
• Loan agreement
• Property documents, confirming the value of property does not exceed Rs 50 lakhs.

Housing Loan Tax Benefits: Deduction Limits Across Different Sections

Taking a home loan offers tax benefits on both principal and interest payments.

Let’s explore the deductions you can claim on your home loan and the benefits they offer.

Examples for Deduction u/s 80EE 

• Mr A has purchased his first house property on 16th April, 2016, for which he obtained loan from his relative. He paid an interest of Rs. 1.8 lakhs for the financial year. 

In this case, he cannot claim deduction as he did not receive loan from a banking company or a housing finance company.

•  Mr A has received a loan of Rs. 50 lakhs for purchase of his first home on 16th April, 2016. He paid an interest of Rs. 1.8 lakhs for the financial year. 

Since the amount of loan here exceeds Rs 35 lakhs, he cannot claim deduction under this section.

•  Mr A has received a loan of Rs. 30 lakhs for purchase of his first home on 16th April, 2016. The value of house property is Rs. 60 lakh. He paid an interest of Rs. 1.8 lakhs for the financial year. 

Since the value of the house property exceeds Rs 50 lakhs, he cannot claim deduction under this section though the amount of loan is within the limit.

• Mr A has purchased his first house property on 16th April, 2016, for which he obtained loan from a banking company. He paid an interest of Rs. 1.8 lakhs for the financial year. He already claimed deduction for the full amount under section 24.

Since he already claimed deduction u/s 24, the same interest cannot be claimed under section 80EE.

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 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.