How Much Can You Save on Affordable Housing Loans?

Last Updated : Sept. 26, 2019, 11:24 a.m.

Now, how do we determine what is affordable housing? Affordability can be perceived differently by different people depending on their budgets and income. As per the government notification, affordable homes are those housing units whose stamp value is not more than ₹45 lakh. To give an impetus to affordable housing projects in India, the government has announced additional tax breaks upto ₹1.5 lakh on interest paid on a home loan. This will be over the maximum ₹2 lakh that you get under Section 24 of the Income Tax Act. The additional savings is made possible thanks to the introduction of Section 80EEA in the Union Budget 2019. The additional tax break of INR 1.5 lakh on home loan interest is extended till March 31, 2022, Read on to know more about the same.

How Will the Section 80EEA Work to Your Advantage?

As said earlier, Section 80EEA applies to homes with value upto ₹45 lakh. There are chances that some low-cost homes can lead to interest payments below ₹2 lakh in a year. If that is the case, you won’t get the benefits of 80EEA.

Let’s consider the following example to figure out the likely interest payments.

Example – You want to buy a property worth ₹40 lakh. For this, you can get a maximum loan of ₹32 lakh. If you get the same at an interest rate of 8.50% per annum for 20 years, the interest liability would amount to ₹2,69,557 in the first year. In fact, you would pay interest more than ₹2 lakh for almost the first half of the loan journey, if the repayment calculations are to be believed. Hence, you can save additional tax under Section 80EEA.

Conditions You Must Fulfill to Enjoy Additional Tax Benefits

• The loan must have been sanctioned between April 1, 2019, and March 31, 2020

• The individual won’t be able to claim a tax deduction under Section 80EE, which otherwise provides a maximum tax savings of ₹50,000 a year

• One must be buying a home for the first time and should not own any residential property on the sanction date of the loan

• The carpet area of the house property must not be more than 60 square meter i.e. 645 square feet in metropolitan cities such as Delhi & National Capital Region (NCR), Mumbai, Kolkata, Bengaluru, Hyderabad and Chennai

• The carpet area must not be more than 90 square meters i.e. 968 square feet in other cities or towns