Section 80EEA: Tax deduction against home loan interest paid

This section is meant to offer relief to first-time buyers.

Under Section 80EEA of the Income Tax Act in India, first-time homebuyers investing in affordable property with the help of a home loans get Rs 1.50 lakh tax deductions on home loan interest payment.

Section 80EEA: Background

Section 80EEA was introduced by finance minister Nirmala Sitharaman in the 2019 Union Budget to give a boost to the Centre’s Pradhan Mantri Awas Yojana (PMAY).  The section was launched in the 2019 Budget. The Section 80EEA deduction is over and above the Rs 2 lakh deduction limit allowed under Section 24 (b).

Section 80EEA of Income Tax Act: Text

“In computing the total income of an assessee, being an individual not eligible to claim deduction under section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property. The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.”

Price and carpet area limit under Section 80EEA

Under this section, a property of up to Rs 45 lakh qualifies as an affordable property. To qualify for the benefit under this section, the house must also meet carpet area limits. If a unit is located in a metropolitan city, its carpet area should not exceed 645 square foot (sqft) or 60 square metre (sqm). The carpet area of units in any other city must be 968 sqft or 90 sqm.

Section 80EEA: Applicable time limit

Benefits of Section 80EEA are offered to home loans sanctioned between 1 April 2019 and 31 March 2022. Borrowers whose loans were approved during this period will enjoy the tax deduction under this section throughout the loan repayment tenure. Lousing loans sanctioned starting 1 April 2022 are not eligible to claim Section 80EEA deduction as the benefits offered under this section ended on 31 March 2022.

 

 

Section 80EEA deduction amount 

One can get up to Rs 1.50 lakh of deduction under Section 80EEA. This is over and above the deduction of Rs 2 lakh 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 lakh.  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.

Know about: Section 80ee

Section 80EEA: Features

Who can claim Section 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 according to Section 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 Section 80EEA?

Deduction can be claimed against home loan interest payment only.

 

What is Section 80EEA deduction limit?

The deduction limit is Rs 1.50 lakh per year.

 

What is the period covered under Section 80EEA?

Borrowers whose home loans are sanctioned between 1 April 2019 and 31 March 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 lakh.

 

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.

 

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 square foot (sqft) or 60 square metre (sqm) to claim the Section 80EEA benefit. For units in any other city, the carpet area has been limited at 968 sqft or 90 sqm.

 

Which cities are considered metropolitan cities under Section 80EEA?

Cities that are considered metropolitan for this purpose are Bangalore, Chennai, Delhi, Faridabad, Ghaziabad, Greater Noida, Gurgaon, 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 lakh each as deductions under this Section, provided they meet all the other conditions.

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.

 

Income tax deductions for interest paid on home loan under various sections 

 

Section 24(B) Section 80EE Section 80EEA
Deduction of Rs 2 lakh for self-occupied property

Deduction of entire interest paid on rented property

Additional deduction (over and above Section 24B) of Rs 50,000 on interest paid for first-time buyers on loans sanctioned by banks between April 1, 2016, to March 31, 2017. Additional deduction (over and above Section 24B) of Rs 1.50 lakh on interest paid for first-time buyers on loans sanctioned by banks between April 1, 2019, to March 31, 2022.

 

Section 80EE vs Section 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.

Section 80EE vrs Section 80EEA

Particulars Section 80EE Section 80EEA
Property value Up to Rs 50 lakh Up to Rs 45 lakh
Loan amount Up to Rs 35 lakh Not specified
Loan period covered April 1, 2016 to March 31, 2017 April 1, 2019 to March 31, 2022
Maximum rebate Rs 50,000 Rs 1.50 lakh
Lock-in period None None

See also: All about carpet area

Section 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 lakh or entire interest* Rs 1.50 lakh
Property value No specification Rs 45 lakh
Loan period Loans taken after April 1, 1999 April 1, 2019 to March 31, 2022
Buyer category All home buyers First-time individual home buyers
Lock-in period** None None

 

*While a rebate of Rs 2 lakh 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 lakh 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 buyers can use Section 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 lakh

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

 

Section 80EEA benefit time limit

Even though the deduction under 80EEA may be available only on home loans sanctioned till March 2022. But 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.

 

You may also like to read

Section 80C Section 24 GST real estate
Tax saving on property purchase Section 80GG Section 80E
Section 54 TDS on rent GST on rent

 

FAQs

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.

Can I claim 80EEA benefit for a loan taken for renovation or extension of a property? No, tax benefits under 80EEA can be claimed only for a loan taken for the purchase of a residential property.

 

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