Tax deduction on home loan interest under Section 80EE

Buying a home is one of the key financial investments that most people make in their lifetime. And while the joy of owning a home is undeniable, the cost of a home loan can be a significant burden. Fortunately, the Indian tax system provides several deductions and exemptions that can reduce the tax burden for home loan borrowers. One such provision is Section 80EE of the Income Tax Act, which provides a deduction for interest paid on a home loan.

Section 80 EE

Section 80EE of the Income Tax Act is a tax deduction available for individuals who have taken a home loan to purchase their first home. The deduction is available for the interest paid on the home loan and is in addition to the deduction available under Section 24 of the Income Tax Act, which covers e interest paid on a self-occupied property. The maximum deduction available under section 80EE is INR 50,000 per financial year.

FYI, Section 80EE of the Income Tax offers tax benefits on home loans. It was first introduced in the financial year 2013-14 and was valid for two years only, with a maximum deduction limit of Rs. 1L. The section was reintroduced in the financial year 2016-17, and the deduction limit was increased to 50,000 per year till the loan is repaid.

Eligibility for section 80EE Deduction

To be eligible for the Section 80EE deduction, the following condition must be met:

  • The home loan must be taken from a financial institution, such as a bank or house finance company.
  • The loan must be borrowed from a financial institution, such as a bank or housing finance company.
  • The loan must be taken for the purpose of purchasing a residential property that is the borrower’s first home.
  • The loan must have been disbursed between April 1, 2016, and March 31, 2017.
  • The value of the property must not exceed INR 50L.
  • The loan must not exceed INR 35L.
  • The individual should not be an owner of any other property at the time of taking the home loan.
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Benefits of Section 80EE Deduction

The Section 80EE deduction offers several benefits to home loan borrowers, including:

  • Reduced Tax Burden: The deduction is available on the interest paid on the home loan, which can help reduce the borrower’s taxable income and lower their tax burden.
  • Increased Saving: By reducing the tax burden, the Section 80EE deduction can help increase the borrower’s savings, which can be used to pay off the home loan or four other expenses.
  • Increased Affordability: By reducing the tax burden, the Section 80EE deduction can make it more affordable for borrowers to make the EMI payment on their home loan.

Section 80 EEA

Section 80EEA of the Income Tax Act was introduced in the Union Budget 2019. It extends the tax benefits for the interest deduction on housing loans for affordable housing up to Rs 1,50,000. To be eligible for this deduction, the following must be met:

  • The individual taxpayer must be a first-time home buyer.
  • The housing loan must be taken for an affordable housing unit, between April 1, 2019, to March 31, 2022.
  • The taxpayer should not be entitled to a deduction under the 80EE Section of the Income Tax Act.

It is important to know that the deduction under Section 80 EEA is in addition to the Rs 2 Lakh limit permissible under Section 24 of the Income Tax Act. However, it should be noted that this section is applicable only for a certain period, and the taxpayer must fulfil all the conditions to be eligible for the deduction.

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Affordable Housing Property under Section 80 EEA

Affordable Housing Property, as per Section 80EEA of the Income Tax Act, refers to a residential property where the cost of the property (Including the cost of the land) doesn’t exceed Rs 45 lakh and the size of the property does not exceed 60 sq. Meters in metropolitan cities (Delhi, Mumbai, Chennai, Kolkata, and Bengaluru) and 90sq. Meters in other cities. This type of property is eligible for additional tax benefits for first-time home buyers under Section 80 EEA.

Claiming the Benefit

To Claim the benefits under the Section 80EEA of the Income Tax Act, the following conditions must be fulfilled include:

  • Loan is taken for the affordable housing property between 1 April 2019 to 31 March 2022.
  • The individual taxpayer must be a first-time homebuyer.
  • The value of the affordable housing property must be 45L or less.
  • The loan taken for affordable housing property must be less than Rs 35L.
  • The loan must be provided by a financial institution or a housing fiancé company.
  • The individual taxpayer should not be entitled to a deduction under Section 80EE.

To claim the deduction, the individual must fill out the relevant sections of the Income Tax Return and submit it along with the required documents to the Income Tax department. The deduction will be calculated based on the interest paid on the affordable housing property.

Conclusion

The Section 80EE and 80EEA deduction is a valuable tax benefit for individuals who have taken a home loan to purchase their first home. By providing a deduction for the interest paid on the home loan, the provision can help reduce the tax burden for borrowers and make it more affordable for them to repay their loans. If you are a home loan borrower, it is important to understand the eligibility requirements and the steps required to claim the Section 80EE deduction. And as always, it is a good idea to consult with a financial advisor for guidance on your tax planning and investment strategy.

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FAQs

1. How many times can one claim a deduction under section 80EE?

Deduction under Section 80EE can be claimed until the loan is repaid, with a maximum limit of Rs 50,000 per year. And you can claim it only once in a fiscal year.

2. Do Non-residents come under Section 80EE?

Non-resident Indians are eligible to claim the deduction under the 80EE Section of the Income Tax Act. The Section does not specify if the individual needs to be a resident to claim the benefit.

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