Section 80EEA: Tax deduction against home loan interest payment


In this article, we would discuss at length Section 80EEA and answer every question around the benefits, eligibility, deduction limit and more, offered to first-time home buyers under this section

Under Section 80EEA, first-time home buyers investing in affordable homes in India enjoy additional interest payment deductions on income tax. However, the benefits of 80EEA are applicable only if they buy an affordable property with the help of home loans. The applicability of 80EEA is on home loans taken between April 1, 2019 and March 31, 2022.

 

Is 80EEA applicable for 2022?

Note that home buyers applying for housing loans starting April 1, 2022, will not be able to claim 80EEA deduction, as the benefits offered under Section 80EEA have ended on March 31, 2022. In other words, applicability of 80EEA has ended in FY22.

 

80EEA of Income Tax Act

In its first term that started in 2014, the prime minister Narendra Modi-led NDA government launched its flagship ‘Housing for All by 2022’ programme. With the same objective, it also announced the launch of the Pradhan Mantri Awas Yojana (PMAY), to incentivise house purchase through subsidies offered by the centre. 80EEA was introduced by finance minister Nirmala Sitharaman in the 2019 Union Budget with an aim to give a boost to the centre’s ‘Housing for All by 2022’ programme, by way of offering additional tax benefits on the purchase of affordable homes.

80EEA of the income tax act enables home buyers make up to Rs 1.50 lakh of their income in a year tax-free. Offered over and above the benefits enjoyed by other categories of buyers, the benefits to first-time home buyers in India are offered under Section 80EE and Section 80EEA.

 

80EEA deduction

Launched in the 2019 Budget, Section 80EEA helps first-time home buyers to save an additional Rs 1.50 lakhs per year against home loan interest payments if they are buying an ‘affordable property’.

The 80EEA deduction is over and above the Rs 2-lakh-deduction limit allowed under Section 24 (b). However, 80EEA deduction is linked to the cost of the house and is extended on the purchase of housing units worth up to Rs 45 lakhs. The affordability of the house is also decided by the carpet area of the property. If a unit is located in a metropolitan city, its carpet area should not exceed 645 sq ft or 60 sq metres, for the owner to claim the benefit under Section 80EEA. For units in any other city, the carpet area has been limited at 968 sq ft or 90 sq metres.

 

 

80EEA deduction amount 

One can get up to Rs 1.50 lakhs of deduction under Section 80EEA. This is over and above the deduction of Rs 2 lakhs on interest payment under Section 24(b). For a first-time buyer, then, the annual tax rebate against home loan interest payment thus comes to Rs 3.50 lakhs.  Since the ‘affordable’ tag of the property remains the determining factor on whether or not you can claim deductions under Section 80EEA, it becomes pertinent to have a clear idea about what an affordable property is.

80EEA deduction eligibility

The Finance Bill, 2019, further specified the eligibility to avail of benefits under 80EEA.

80EEA: Features

Who can claim 80EEA deduction?

Only first-time home buyers can claim benefits under this Section, as it specifies that at the time of grant of the home loan the borrower should not own any residential property.

 

Who is a first-time homebuyer as per 80EEA?

A first-time home buyer is a person who does not own a property in his name at the time of applying for his home loan. For tax calculation purposes, a working adult, even if single, is considered a separate household and thus, a first-time home buyer even if his parents own properties.

 

What is the deduction for under 80EEA?

Deduction can be claimed against home loan interest payment only.

 

What is 80EEA deduction limit?

The deduction limit is Rs 1.50 lakhs per year.

 

What is the period covered under 80EEA?

Borrowers whose home loans are sanctioned between April 1, 2019 and March 31, 2022, can claim benefits.

 

Which category of buyer can apply for deduction under Section 80EEA?

Only individual buyers can claim deductions under this section. This means companies, Hindu undivided families, etc., cannot claim benefits.

 

What should be the source of the home loan for section 80EEA to apply?

The buyer has to take the home loan from a financial institution (banks housing finance companies) and not from family members, relatives or friends.

 

What should be the property value for section 80EEA to apply?

The stamp value of the property should not exceed Rs 45 lakhs.

 

What sort of property is covered under 80EEA?

Buyers of residential house property can claim the benefit. It is also specified that the loan must be borrowed for buying the property and not reconstruction, repair, maintenance, etc.

 

What is the limitation under section 80EEA?

If a buyer is claiming deductions under Section 80EE, he cannot claim deductions under Section 80EEA.

For how many times the deduction under 80EEA can be claimed?

The deduction under 80EEA can be claimed till you have repaid your home loan.

 

Can NRIs claim 80EEA deduction?

Since the law does not specify whether a first-time buyer has to be a resident Indian to claim deduction, it has been interpreted by tax experts that even non-residents claim deductions under Section 80EEA.

 

Conditions to claim 80EEA deduction

What is the carpet area limit of units, to claim deduction under Section 80EEA?

According to the Finance Bill, if a unit is located in a metropolitan city, its carpet area should not exceed 645 sq ft or 60 sq metres, to claim the Section 80EEA benefit. For units in any other city, the carpet area has been limited at 968 sq ft or 90 sq metres.

 

Which cities are considered metropolitan cities under Section 80EEA?

Cities that are considered metropolitan for this purpose are Bengaluru, Chennai, Delhi, Faridabad, Ghaziabad, Greater Noida, Gurugram, Hyderabad, Kolkata, Mumbai and Noida.

 

Can Section 80EEA deductions be claimed if the property is not self-occupied?

Section 80EEA does not specify if the property must be self-occupied, to seek the tax break. This also allows buyers who are living in rented accommodations to claim deductions while also claiming HRA benefits under Section 80GG.

 

Can joint owners claim Section 80EEA deductions  separately?

In case the joint owners are also co-borrowers, they can both claim Rs 1.50 lakhs each as deductions under this Section, provided they meet all the other conditions.

 

Income tax deductions for interest paid on home loan

Section 80EEA, 24(b), 80EE

 

80EE vs 80EEA

First-time buyers must know the difference between Section 80EE and Section 80EEA. Those claiming deductions under Section 80EE cannot claim deductions under Section 80EEA. This is specifically mentioned in the law.

 

Difference between 80EE and 80EEA

Particulars Section 80EE Section 80EEA
Property value Up to Rs 50 lakhs Up to Rs 45 lakhs
Loan amount Up to Rs 35 lakhs Not specified
Loan period covered April 1, 2016 to March 31, 2017 April 1, 2019 to March 31, 2021
Maximum rebate Rs 50,000 Rs 1.50 lakhs
Lock-in period None None

See also: All about carpet area

80EE deduction

First-time home buyers can claim deduction of up to Rs 50,000 under Section 80EE in a financial year against payment of home loan interest.  80EE deductions can be claimed till the home loan is fully repaid. Also note that 80EE deduction is available only to individuals. This means an HUF, an AOP, a company, etc., cannot claim 80EE deduction.

 

Difference between Section 80EEA and Section 24(b)

Category Section 24(b) Section 80EEA
Possession Must Not required
Loan source Banks or personal sources Only banks
Deduction limit Rs 2 lakhs or entire interest* Rs 1.50 lakhs
Property value No specification Rs 45 lakhs
Loan period Loans taken after April 1, 1999 April 1, 2019 to March 31, 2021
Buyer category All home buyers First-time individual home buyers
Lock-in period** None None

*While a rebate of Rs 2 lakhs is allowed for self-occupied property, the entire interest is allowed as deduction in case of let-out property.

**Section 80C specifies that buyers should not sell the property for five years, to claim deductions. This is known as the lock-in period.

Buyers can claim deductions under both, Section 24(b) and Section 80EEA, and enhance their total non-taxable income to Rs 3.50 lakhs, if they meet the eligibility criteria. However, deductions under Section 80EEA can only be claimed after exhausting the Rs 2-lakh limit under Section 24(b).

See also: All about e stamping

 

How home buyers can use 80EEA to claim maximum deduction?

Since Section 80EEA has been introduced to help the middle-income group to own a home by way of higher monetary support, let us see how much of his income a person can make non-taxable, if he were to buy his first home today.

80EEA tax calculation example

Rahul Khanna works at an IT company in Noida and his annual salary package is Rs 15 lakhs. Let us assume that he is not enjoying any tax deductions so far. At the current tax slab, his total taxable income would be:

 

Rs 15 lakhs – Rs 40,000 (This is the standard deduction all tax payers in India enjoy) = Rs 14.60 lakhs

Khanna falls in the Rs 12.5 lakhs-Rs 15 lakhs tax bracket. So, the highest rate at which his income will be taxed is 30%.

 

Split of Rs 14.60 lakhs for tax calculations

Rs 2.5 lakhs (@0%) = 0

Rs 2.5 lakhs (@5%) = Rs 12,500

Rs 5 lakhs (@20%) = Rs 1,00,000

Rs 4.6 lakhs (@30%) = Rs 1,38,000

Total = Rs 2,50,500

+ cess (@4%) = Rs 10,020

 

Khanna’s total tax outgo = Rs 2,60,520

 

Now, let us assume that Khanna invests in his maiden property to lower his tax outgo. He is buying a property worth Rs 45 lakhs, for which he is taking 80% of the property value (Rs 36 lakh) as loan from a scheduled bank at an 8% interest rate.

 

Key numbers

Loan amount: Rs 36 lakhs

Tenure: 15 years

Interest rate: 8%

 

This would lead to:

EMI of Rs 34,403

Total interest (in 15 years): Rs 25,92,624

Total payable (in 15 years): Rs 61,90,624

 

If Khanna took the loan in December 2019, through 2020 (the first year of the loan tenure) he would be paying:

Rs 1,29,522 as home loan principal

Rs 2,83,319 as home loan interest

 

Under Section 80C, which offers rebate against specific investments, including home loan principal, Khanna can get Rs 1,29,522 from his income made tax-free (the upper limit under this Section is Rs 1.50 lakhs in a year).

 

Under Section 24(b), Khanna can claim Rs 2 lakhs as deduction against the interest paid.

 

Now, under Section 80EEA, Khanna can also claim the remaining Rs 83,319 as deduction from the overall limit of Rs 1.50 lakhs.

 

After applying all these deductions, here is the breakup of Khanna’s total taxable income:

 

Rs 15 lakh – Rs 40,000 (Standard deduction)

= Rs 14.60 lakh

 

Deduction under Section 80C: Rs 1,29,522

Deduction under Section 24(b): Rs 2,00,000

Deduction under Section 80EEA: Rs 83,319

Total deductions: Rs 4,12,841

 

Total taxable income: Rs 14,60,000 – Rs 4,12,841 = Rs 10,47,159

 

Khanna still falls in the category of over Rs 10 lakh taxable income, so the highest rate at which his income is taxed remains 30%, but the amount to be taxed at 30% has come down significantly. Here is the split of his income for tax calculations:

 

Rs 2.5 lakhs (@0%) = 0

Rs 2.5 lakhs (@5%) = Rs 12,500

Rs 5 lakhs (@20%) = Rs 1,00,000

Rs 47,159 (@30%) = Rs 14,148

 

Total tax: Rs 1,26,648

+ cess at 4% = Rs 5,066

 

Total tax outgo: Rs 1,31,714

 

Total savings as against the earlier outgo:

Rs 2,60,520 – Rs 1,31,714 = Rs 1,28,806

 

Can I claim deduction under Section 80EEA if loan was taken in 2015?

Since the provision specifically mentions that the deduction will apply on only those loans that have been/would be granted between April 1, 2019, and  March 31 2021, people whose loans have been sanctioned prior to or after this period, will not be eligible to claim the additional rebate under Section 80EEA.

See also: All about GST on flat

 

80EEA facts

Even though the deduction under 80EEA may be available only on home loans sanctioned till March 2022, those who are eligible for the rebate can claim deductions throughout the term of their home loan repayment.

Under the PMAY rules, a single earning member of a family is considered a separate household for tax calculation purposes. This also means that an unmarried buyer, who is financially independent, is a separate household and can thus claim tax deductions under Section 80EEA for his first property purchase.

 

 

FAQs on 80EEA

When did Section 80EEA come into force?

Section 80EEA was introduced in the Budget 2019. In the Budget 2021, its cover was increased up to March, 2022.

What is the deduction limit under Section 80EEA?

First-time home buyers can claim tax deduction of Rs 1.50 lakhs in a year against the home loan interest payment under this Section.

Who is eligible for tax deductions under Section 80EEA?

First-time home buyers can claim deductions under Section 80EEA, if: *The loan has been taken from a bank or housing finance company. *The stamp duty value of property is up to Rs 45 lakhs. *They are not claiming deductions under Section 80EE.

What should be the value of the flat, to avail of the benefits under Section 80EEA?

The stamp duty value of the property should not exceed Rs 45 lakhs.

Can I claim deductions under Section 80EE and Section 80EEA together?

The law clearly states that those claiming benefits under Section 80EE cannot claim rebate under Section 80EEA.

Can I claim deductions under Section 80EEA for plot purchase?

Deduction under Section 80EEA can only be claimed for purchase of housing units, including flats or apartments. The section is not applicable on the purchase of plots.

Can I claim deduction of principal repayment on home loan under Section 80EEA?

Deduction under Section 80EEA can only be claimed against home loan interest payment.

Can I claim deduction of interest payment on electric vehicle loan under Section 80EEA?

Deduction of interest payment on electric vehicle is allowed under Section 80EEB.

Can I claim deduction under Sections 24 and Section 80EEA simultaneously?

Buyers can claim deductions under both these sections and enhance their total non-taxable income to Rs 3.50 lakhs, if they meet the eligibility criterion. However, deductions under Section 80EEA can only be claimed after exhausting the limit of Rs 2 lakhs under Section 24(b).

For how many years is the deduction under Section 80EEA available?

Deductions can be claimed throughout the loan repayment tenure.

Can I claim deductions under Section 80EEA after I buy my second property?

Yes, deductions under the section are available on home loans that are taken when the tax payer had no property. Your future property ownership has no impact on this rebate.

Can my wife and I both claim deduction under Section 80EEA?

Yes, if the property is registered in both names and if she is also a co-borrower in the home loan.

Can I claim deductions under Section 80EEA if I take loan from family members/friends?

No, the loan has to be borrowed from a bank or HFC to claim this benefit.

What is stamp duty value of a property?

The value at which a property is registered in the government records is known as its stamp duty value.

What is the definition of affordable homes?

According to government-defined standards, affordable homes are units priced up to Rs 45 lakhs.

What documents will I have to give to my company to claim tax deduction under Section 80EEA?

The borrower will have to submit the interest certificate issued by his bank, to claim the rebate.

 

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