Budget 2019: Additional tax benefit of Rs 1.5 lakhs under Section 80 EEA explained

The Union Budget 2019-20 has proposed an additional tax benefit of Rs 1.50 lakhs on the interest component of home loans. We look at the eligibility criteria for claiming this benefit and how it differs from Section 24(b)

The Union Budget 2019-20, presented by Nirmala Sitharaman, the first full-time woman finance minister, did not have many provisions for home buyers. Nevertheless, in order to give a boost to the ‘Housing for All by 2022’ mission, she offered an additional tax benefit of Rs 1.50 lakhs on the interest component of home loans, taken from specified financial institutions, under a new Section 80 EEA. This is in addition to the existing benefit of Rs 2 lakhs, which is available under Section 24(b), to a person who is buying a residential house for his own occupancy.

 

Additional tax benefit of Rs 1.5 lakhs: What is the exact benefit that is being proposed?

The additional benefit, is being offered under a proposed new Section 80 EEA, as a deduction from gross total income. There are certain conditions to be fulfilled, for being eligible to claim the proposed additional benefit of interest upto Rs 1.50 lakhs. The first condition, is that the value of the house being bought should not exceed Rs 45 lakhs, as per the stamp duty ready reckoner published by the state government. So, your agreement value is not relevant for this purpose. If you buy a house for an amount which exceeds the threshold limit of Rs 45 lakhs, you will still be able to claim this benefit, as long as the value does not exceed Rs 45 lakhs as per the stamp duty reckoner, which is also referred to as the circle rates.

This benefit is available only for home loans sanctioned between April 1, 2019 and March 31, 2020, irrespective of the date of actual disbursement of the loan or purchase or booking of the home. So, even if you have booked an under construction property prior to April 1, 2019, you can still claim this benefit, provided you get a sanction letter which is issued between these two qualifying dates and provided you satisfy all the other conditions.

The tax benefit of Rs 1.5 lakhs is available if the home loan is taken from a financial intuition. As per the definition of financial institution used for this purpose, only home loans taken from banks will be eligible for this purpose. So, any loan taken from a housing finance company, shall not qualify for this purpose. This seems to be a drafting error and hopefully, should be rectified by the time this bill is passed.

See also: Budget 2019: What did the home buyers and home owners get

In order to claim this deduction, the borrower should not have any house, as on the date of sanction of the home loan. There is no restriction on your other family members owning a residential house, for qualifying for this benefit. Although the finance minister, in her speech, has created an impression that this benefit is available for self-occupied property but the wording used in the proposed section does not convey that impression. So, you can claim this benefit even for a let-out property if you do not own any residential house on the date of sanction of the bank loan, implying thereby that you can still avail of the benefit under this scheme if you buy another residential house, after obtaining the sanction letter. So, you will continue to get the benefit of this provision, if you acquire any number of residential house properties, in the same year or in subsequent years after the sanction of the bank loan.

 

How is it different from the existing tax benefit available under Section 24(b)?

Presently, you are allowed to claim interest benefit for any money borrowed for purchase, construction, repair or renovation of a house, under Section 24(b). This deduction can be claimed with respect to any property, whether residential or not, without there being any restriction on the value of the house. However, the tax benefit under the proposed section, can only be availed of with respect to a residential house and that too, for a value not exceeding Rs 45 lakhs.

Deduction under the new provision can only be claimed for acquiring a residential house, whereas the benefit under existing provisions are available even for repair or renovation of your existing house property. The new benefit of interest under Section 80 EEA is available, only if the money has been borrowed from banks, whereas the benefit under Section 24(b) can be claimed, for money borrowed from anyone including your friends and relatives. The benefit available under Section 24(b) is available as a deduction under the head ‘Income from House Property’, whereas the new benefit on interest is proposed to be made available, as a deduction against your total taxable income from all sources.

For an under-construction property, the interest under Section 24(b) can be claimed only if the construction of the house property has been completed and possession taken and therefore, cannot be claimed during the construction period. However, the aggregate of interest paid during the construction period, can be claimed in five equal instalments, together with interest for the current year, beginning from the year in which the construction of the house was completed. Against this, the benefit under the proposed Section 80 EEA, can even be claimed during the construction period, as the completion of construction is not a prerequisite for this purpose.

If your total income is not sufficient to claim the tax benefit offered under the new section 80 EEA, even if you are otherwise qualified, your right for that year lapses and you cannot carry forward the same, to a subsequent year. On the other hand, any loss computed under the house property head beyond Rs 2 lakhs, is allowed to be carried forward, for set-off against house property income of the subsequent year.

 (The author is a tax and investment expert, with 35 years’ experience)

 


Interim Budget 2019: 3 main tax benefits for property owners

February 2, 2019: The interim budget 2019 has offered some unexpected benefits for owners of property. We look at the three main announcements that are likely to bring tax relief to home owners

1. Exemption of notional rent on second self-occupied property

Tax payers who own and occupy more than one house have to pay tax on notional rent, which the property might fetch. This used to put many tax payers under undue monetary pressure as these tax payers may have a second house in a native place or one that is used by their parents for which no rent is received. Until now, they had to pay notional rent on the second property, as one can claim only one owned house as self-occupied. Now, tax payers will be able to claim two owned houses as self-occupied, without having to pay any tax on such notional rent, provided the same is/are not let-out.

See also: Budget 2019 highlights: What did home buyers and the real estate sector gain

2. Exemption on long-term capital gains when the same is invested in two houses

Presently, you can claim the tax benefits with respect to long-term capital gains on the sale of residential house, if the indexed long-term capital gains are invested for buying or constructing another one residential house, within the period specified. The interim budget 2019 proposes to expand this benefit to buying or constructing two residential houses, for the purpose of claiming the exemption under Section 54, provided the amount of capital gains does not exceed Rs two crores. Once a tax payer claims the exemption for buying or constructing two house, he cannot claim the exemption for the same year or the subsequent years.

3. Increase in TDS limit for rental income

The third benefit for property owners is by way of increased limit for rent on which the lessee will deduct tax, before paying the rent to the landlord. Against the present limit of Rs 1.80 lakhs, the lessee will now have to deduct TDS, if the annual rent exceeds Rs 2.40 lakhs. The tax is required to be deducted, if the lessee is other than an individual or an HUF. An individual or an HUF lessee will deduct tax while paying you rent, if and only if he is engaged in business or profession and their books of accounts were subjected to tax audits in the previous year.

(The author is a tax and investment expert, with 35 years’ experience)

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