Section 80EE: Tax deduction against home loan interest payment

Section 80EE of the Income Tax Act allows additional benefits for first-time homebuyers in India if they borrow funds from a bank to purchase a home. Discussed in detail in this article are the key features of Section 80EE and how it impacts first-time home buyers.

Know about: 80e deduction limit

The premise

Tax laws in India promote home ownership, by way of providing several rebates against housing loan repayment. While some of the provisions of the Income Tax Act, 1961, are meant for all borrowers, others, including Section 80EE and Section 80EEA, are meant specifically for first-time home buyers. In this article, we discuss the details of Section 80EE and how first-time home buyers can maximise tax benefits with the help of this provision.

 

 

See also about: Section 80EEA

What is Section 80EE?

Former finance minister P Chidambaram introduced Section 80EE in the Budget 2013-14 and the exclusive tax benefits granted to first-time home buyers remained applicable for two financial years. Under the section, a one-time rebate of Rs 1 lakh was offered to first-time buyers against home loan interest payment, if the worth of the property did not exceed Rs 40 lakhs and the housing finance limit for this property did not exceed Rs 25 lakhs. The deduction under Section 80EE was made available to individual buyers only.

Note: Since it was a one-time rebate and the section was revised, the old version is no more applicable. During the Budget 2016-17, Section 80EE was reintroduced by the then finance minister, late Arun Jaitley. Changes were made in the section, in an attempt to improve housing demand at a time when demand slowdown began to impact sales numbers in India’s major property markets. Under Section 80EE, a tax deduction of Rs 50,000 is offered to first-time home buyers against the home loan interest payment, if they meet certain conditions. Click here to read the official text of Section 88EE.  Under this section, interest includes ‘any service fee or other charges in respect of money borrowed or processing fees’.

Know about: income tax deduction for salaried employees

Purpose of Section 80EE

The idea behind introducing Section 80EE in the I-T Act, was to encourage home purchases among first-time home buyers in India looking for affordable homes.  Mainly targeted to benefit the migrant population in India’s big cities, this section was also meant to provide a boost to developers of affordable homes in India, who had accumulated a large unsold inventory of units priced below Rs 50 lakhs.

Section 80EE deduction for AY 2018-19 onwards

Buyer category: The benefit was available only to individuals – this means that Hindu Undivided Families, association of persons or companies, cannot avail of the benefits under Section 80EE. Also, since the benefit is meant exclusively to first-time buyers, the tax payers should not own a property at the time of sanctioning of the loan.

Price cap: The property’s value should not exceed Rs 50 lakhs and the loan value should not exceed Rs 35 lakhs. Do note here that rebate under this section is meant only for the investment portion, i.e., the property value.

Borrowing source: Unlike Section 24 that allows buyers to claim deductions even if the loan is borrowed from family members or friends, the rebate under Section 80EE is allowed, only if the loan is granted by a bank or housing finance company.

Borrowing period: The loan should have been sanctioned by the financial institution between April 1, 2016 and March 31, 2017. While the tax payer who has taken the loan in that period can enjoy the benefit throughout his loan tenure, starting assessment year 2017-18 onwards, benefits under Section 80EE are not applicable for loans sanctioned after that period.

Interest statement: The tax payers will have to submit an interest certificate issued by his bank, to claim the deduction.

Property type: The benefits of Section 80EE apply only for ‘acquisition of a residential property’. This means that you cannot claim deduction if you have bought a plot and plan to build your first home on it with the help of housing finance. Similarly, this property must be used for residential purposes only and not to run any business or commercial activity.

Check out home loan Section 80EEA

 

How to claim Section 80EE deduction?

Benefit for co-owners: Section 80EE offers rebates on income tax on a per person basis and not on a per property basis. This means joint owners who are also the co-borrowers, can individually claim Rs 50,000 as deductions from their respective incomes.

HRA benefits along with home loan tax benefits: Those who live in rented accommodations and claim rebate on tax against housing rent allowance, can simultaneously enjoy deductions under Section 24 and Section 80EE. Do note here that the deduction under 80EE can be claimed only after exhausting the rebate under Section 24 (b).

Section 80EE: Eligibility and features

Maximising Section 80EE denefits 

Section 80EE and Section 24 (b)

The borrower must get in touch with his lender to gauge the overall payment towards interest payment in a year. After exhausting the limit under Section 24(b), one can claim the additional Rs 50,000 under Section 80EE.

Additional tax benefits under Section 80EE

First-time home buyers can get a large part of their income tax-free, if they plan the purchase wisely. Example: Vinay Kumar and his wife Renuka bought their first home for Rs 50 lakhs in December 2017 and took a housing loan of Rs 35 lakhs from a scheduled bank at 8% interest. The couple would be paying Rs 2,77,327 as interest and Rs 73,978 as home loan principal payment in a year. As the property is registered in joint names and they are co-borrowers in the loan document, they can both claim Rs 2 lakhs as deduction under Section 24 (b) on home loan interest payment and then claim Rs 50,000 under Section 80EE. While the entire deduction would still not cover the entire interest outgo (Rs 2,77,327) if the loan was being served by an individual, the joint ownership would help Vinay and Rekha to claim up to Rs 5 lakhs of their income as tax-free in a year, by claiming deductions under Section 24 (b) and Section 80EE. If we also factor in the Rs 1.50 lakhs tax deduction enjoyed by both parties under Section 80C (for the home loan principal payment), up to Rs 8 lakhs of the family’s annual income becomes entirely tax-free.

Key points to remember to avail of benefits under Section 80EE

• The home for which you are availing of the benefit, must be your first home.
• You must borrow from a bank and not from personal sources.
• You can claim income tax deduction on the home loan interest component.
• The amount allowed for deduction is up to a maximum of Rs 50,000.
• The deductions can be claimed until you have fully repaid the loan.
• The deduction under Section 80EE is available only to individuals and not to HUFs, companies, etc.

FAQs

Who is eligible to claim tax benefit under Section 80EE?

Only first-time buyers of flats and apartments, whose loan of up to Rs 35 lakhs was sanctioned by a bank or a housing finance company, between April 2016 and March 2017 for a property not worth more than Rs 50 lakhs, can claim deductions under Section 80EE.

Can I claim rebate under Section 80EE if I take a home loan now?

Deductions under Section 80EE are available only to those borrowers whose loan was sanctioned between April 1 2016 and March 31, 2017.

When was Section 80EE introduced?

The then finance minister P Chidambaram introduced Section 80EE in the Budget 2013-14.

I did not claim the deductions for FY 2017-18, even though I purchased a new property in January 2017. Can I claim the deduction now?

No, the deductions should have been claimed by March 2017.

Is the tax rebate under Section 80EE a one-time benefit?

When the section was introduced in Budget 2013-14, the rebate was a one-time opportunity. However, after it was reintroduced in 2016-17, deductions of up to Rs 50,000 can be claimed under Section 80EE each financial year.

Can my wife and I claim deductions under Section 80EE if we are joint owners but only I am servicing the loan?

The co-owners should also be the co-borrowers, to claim deductions under Section 80EE.

Can I claim deductions under Section 80EE along with Section 80EEA?

Home buyers claiming deductions under Section 80EEA cannot claim deductions under Section 80EE and vice-versa.

Can I claim deductions under Section 80EE along with Section 24(b)?

Home buyers claiming deductions under Section 24(b) can also claim deductions under Section 80EE, if they meet the criteria under the latter section. However, buyers can claim benefits under Section 80EE after exhausting the Rs 2-lakh deduction limit under Section 24(b).

Can I continue to claim deductions as first-time home buyer, even if I buy a second property in the meantime?

The law mandated that those claiming deductions as first-time home buyers should not hold a property at the time of their first purchase. Since the second home is purchased after the first, a buyer can continue to enjoy deductions as a first-time buyer, even after buying his second home.

Can I claim deduction under Section 80EE for plot purchase?

No, the section is applicable only for purchase of apartments or flats.