Under the objective “Housing for all”, the government extended the interest deduction allowed for low-cost housing loans taken during the period between 1 April 2019 and 31 March 2022.
Accordingly, a new Section 80EEA has been inserted to allow for an interest deduction from AY 2020-21 (FY 2019-20). The older provision of Section 80EE allowed a deduction of up to Rs 50,000 for interest paid by first-time home-buyers for loans sanctioned from a financial institution between 1 April 2016 and 31 March 2017.
With a view to further the benefit and giving impetus to the real estate sector, the government has extended the benefit for FY 2019-20. This deduction can be claimed until you have repaid the housing loan.
Budget 2023 proposes that when calculating capital gains from the sale of a residential property, the cost of acquisition should not include any home loan interest claimed as an income-tax deduction by the seller throughout the holding term.
The deduction under this section is available only to individuals. This deduction is not available to any other taxpayer. Thus, if you are a HUF, AOP, partnership firm, company, or any other kind of taxpayer, you cannot claim any benefit under this section.
The table below gives you the tax benefits under the sections of the Income Tax Act, 1961.
|Income Tax Act||Deduction Amount|
|Section 24||Rs.2 lakh p.a.|
|Section 80C||Rs 1.5 lakh p.a.|
|Section 80EE||Rs 50,000 p.a.|
Similar to Section 80EE, in order to claim a deduction under Section 80EEA, you should not own any other house property on the date of the sanction of a loan.
Let's look at two examples to calculate deductions under Section 80EEA:
Mr Manohar took out a home loan in FY 2019-20 for a house with a stamp duty value of Rs 40 lakh, and he paid Rs 4,00,000 in interest for the year. He did not own any other residential property on the date the loan was issued. Is Mr Manohar qualified for a Section 80EEA deduction?
In this case, Mr Manohar can claim a Rs 200,000 deduction for home loan interest under Section 24. Furthermore, because the house's stamp value is less than Rs 45 lakh, he is eligible for a Rs 1,50,000 deduction under Section 80EEA. As a result, Mr Manohar is eligible for a total deduction of Rs 3,50,000 under Sections 80EEA and 24.
Mr and Mrs Biswas purchased a house of Rs 45 lakh in FY 19-20, and Mr Biswas also took out a home loan with an annual interest payment of Rs 3,00,000. Mr and Mrs Biswas, can they both claim deductions under Section 80EEA?
Mrs Biswas is not a co-borrower in the loan, hence only Mr Biswas can claim a deduction under Section 80EEA. Mr Biswas can claim a total deduction of Rs 3,00,000 (Rs 2,00,000 under Section 24 and Rs 1,00,000 under Section 80EEA).
Conditions with respect to the carpet area of the house property. These conditions have been specified in the memorandum to the finance bill, but not mentioned in section 80EEA:
Section 80EEA has been introduced to further extend the benefits allowed under Section 80EE for low-cost housing. Earlier, Section 80EE had been amended occasionally to allow a deduction for interest paid on housing loans for FY 2013-14, FY 2014-15, and FY 2016-17.
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 the residential house should be self-occupied to claim the deduction. So, borrowers living in rented houses can also claim this deduction. Moreover, individuals can only claim the deduction for 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. However, they must meet all the conditions laid down.
Stamp duty and registration fees can also be claimed as tax deductions under Section 80C of the Income Tax Act, but they must be within the overall maximum of Rs 1.5 lakh applied to principal payments. This benefit is available whether or not you take out a home loan. Furthermore, this benefit is only available in the year in which the expenses are incurred.
The Income Tax Act allows for the deduction of both pre-construction and post-construction period interest. Interest on pre-construction loans is deductible in five equal annual instalments beginning with the year the residential property is acquired or completed. Hence, the total interest deduction allowed to a taxpayer under Section 24(b) is 1/5th of the interest pertaining to the pre-construction period (if any) plus interest pertaining to the post-construction period (if any).
Section 24(b) of the Income Tax Act allows you to deduct the interest paid on your house loan. A maximum tax deduction of Rs.2 lakh can be claimed from your gross income yearly for a self-occupied residence, provided the construction/acquisition of the house is completed within five years.
If you are able to satisfy the conditions of both Section 24 and Section 80EEA of the Income Tax Act, you can claim the benefits under both sections.
First, exhaust your deductible limit under Section 24, which is Rs 2 lakh. Then, go on to claim the additional benefits under Section 80EEA. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under Section 24.
If you take out a home loan jointly, each borrower can claim a deduction for home loan interest up to Rs 2 lakh under Section 24(b) and a tax deduction for principal repayment up to Rs 1.5 lakh under Section 80C. When compared to a single-applicant home loan, this doubles the number of deductions possible. It is needed, however, that both applicants be co-owners of the property and serve the EMIs.
If you take out a second house loan to buy another property, you can enjoy the same tax benefits, but the total amount of deductions are subject to the relevant restrictions listed above. The government has introduced further incentives for investing in real estate in the 2019 Union Budget. Before, only one property could be considered self-occupied, and a second house was deemed to be let out, and therefore notional rent was computed and taxed as income. Nonetheless, a second home can now be deemed a self-occupied property.
If the joint owners meet all the conditions specified in the Income Tax Act, they can claim a deduction of Rs 1.5 lakh each.
You can claim principal repayment of up to Rs.1.5 lakh as a deduction under section 80C. To claim the deduction under section 80EEA, ascertain the total interest portion during the year and claim a deduction of Rs.2 lakh under section 24(b). If the limit is exhausted, you can claim further deduction under section 80EEA up to Rs.1.5 lakh, subject to all other conditions for eligibility being satisfied.
Does home loan protection insurance provide tax benefits?
You can claim a tax deduction for the amount paid for a home loan protection insurance plan under Section 80C. When you borrow premium money from your lender and pay it back in EMIs, the deduction is not allowed.
No, the 80EEA deduction requires that you don’t claim a deduction u/s 80EE.
Yes, they can be claimed simultaneously.
A top-up home loan is eligible for tax benefits under Section 80C if used for the purchase or construction of a residential property, and Section 24(b) if used for the acquisition, construction, repair, renewal, or reconstruction of residential property, depending on the deduction claimed.