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.
What is Section 80EEA of Income Tax?
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.
Features of Section 80EEA
Here are the key provisions of Section 80EEA:
- Eligibility: The deduction is available to individuals who are first-time homebuyers. A first-time homebuyer is defined as someone who does not own any residential property (self-occupied or let-out) at the time of sanctioning the home loan.
- Maximum Deduction: The deduction under Section 80EEA is limited to a maximum amount of Rs. 1.5 lakh per financial year.
- Affordable Housing Property: The deduction is applicable to home loans taken for the purchase of affordable housing properties. The stamp duty value of the property should be up to Rs. 45 lakh.
- Joint Ownership: The deduction can be claimed individually or jointly by the co-owners of the property. Each co-owner can claim a deduction up to the maximum limit of Rs. 1.5 lakh.
- Time Limit: The deduction can be claimed for home loans sanctioned by financial institutions between 1st April 2019 and 31st March 2022.
- Existing Deductions: The deduction under Section 80EEA is in addition to the existing deduction of up to Rs. 2 lakh available under Section 24(b) for home loan interest.
Section 80EEA Eligibility
Deduction under Section 80EEA is only eligible for individuals and not available to HUF, AOP, BOI, Partnership firm, or any other taxpayer except the Individual assessee. Moreover, the taxpayer needs to opt for the old tax regime to avail of deduction under this section, this deduction is not available under new tax regime.
Tax Benefits on Joint Home Loan
- Co-ownership of the property: If you have taken a joint home loan with one or more co-borrowers, each co-owner can claim tax benefits individually, subject to certain conditions. The maximum deduction allowed remains the same as for an individual borrower.
- Tax benefits on interest repayment: As per the Income Tax Act, you can claim a deduction on the interest portion of the home loan repayment under Section 24(b). The maximum deduction allowed is up to INR 2 lakh per financial year for a self-occupied property. This deduction can be claimed individually by each co-borrower.
- Tax benefits on principal repayment: The repayment of the principal amount of the home loan is eligible for a deduction under Section 80C of the Income Tax Act. The Section 80EEA maximum deduction limit is up to INR 1.5 lakh per financial year. This deduction can also be claimed individually by each co-borrower based on their share of ownership.
- Stamp duty and registration charges: If the joint property is registered in the names of all the co-borrowers, each co-borrower can claim a deduction on the stamp duty and registration charges paid under Section 80C, subject to the overall limit.
Tax Benefits on Second Home Loan
Taxation rules for a second home loan depend on the purpose of your purchase.
- When one of your houses is on rent:
- The income generated from renting your house is typically taxable according to the Income Tax Act.
- You can claim standard deductions @ 30% for expenses related to the maintenance or repair of your rented property.
- You can also claim tax deductions on the interest paid on the loan for your second home. There is usually no cap on the interest deduction based on the property’s construction status.
- When both houses are not rented:
- If you do not rent out either of your properties, the government may not consider them both as “self-occupied.”
- You can choose to treat one house as your “self-occupied property” and the other as “deemed rented out.”
- For the property categorized as “deemed rented out,” you would need to pay tax on the assumed rental income, even if you are not actually renting it out.
- The location of your house may influence the assumed rent amount and the payable tax.
- When both houses are on rent:
- If you decide to rent out both of your properties, you will need to pay tax on the income generated from renting out both properties.
- However, you may be able to avail tax benefits on the interest paid on the loan for your second home under Section 24 of the Income Tax Act.
What are the conditions to claim deduction u/s 80EEA?
Deduction u/s 80EEA is available subject to the given below conditions:
- The stamp duty value of residential houses shall be up to Rs. 45 lakh.
- The loan is taken from a financial Institution or a housing finance company.
- The loan has been sanctioned between 01-04-2019 to 31-03-2020.
- Assessee is not claiming any deduction under section 80EE.
- The assessee owns no residential house property on the date of sanction of the loan.
How is the Deduction Calculated Under Section 80EEA?
Example 1:
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.
FAQs
What is the Difference Between Section 80EEA & Section 24?
| Section 80EEA | Section 24 |
|---|---|
| Sec- 80EEA does not impose any possession requirement; as soon as you start your interest payment, you can claim for exemption. | To claim deduction u/s 24, you must have possession of your house; on the other hand |
| In the case of Section 80EEA only allows home loans taken from banks and financial institutions only. | If a loan is taken from friends or relatives and interest is paid to them, is also allowed for exemption u/s 24. |
| Maximum deduction available Rs. 1,50,000/- | Maximum deduction available Rs. 2,00,000/- |
Conditions to claim the deduction:
| No such conditions exist |
Tax Deductions for Stamp Duty and Registration Charges ?
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.
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