Section 80EEA: Deduction on Affordable Housing Loan Interest

Section 80EEA of Income Tax Act offers a significant tax deduction aimed at promoting home ownership, particularly for first-time homebuyers. Introduced in Budget 2019 under the government's “Housing for all” objective, this provision allows an interest deduction of up to Rs 1.5 lakhs per financial year on low-cost housing loans sanctioned between 1 April 2019 and 31 March 2022. The deduction is available in addition to the existing benefits under Section 80C and Section 24, making it a valuable incentive for individuals purchasing affordable homes. This article provides detailed information on Sec 80EEA of Income Tax Act, its deductions, eligibility criteria, claiming conditions, etc. IndiaFilings simplifies the ITR filing process & get tax benefits from Section 80EEA deductions with expert guidance!! [shortcode_37]

What is a Section 80EEA?

Section 80EEA of Income Tax Act offers a tax deduction on the interest paid on home loans for first-time homebuyers. It was introduced to promote affordable housing and applies to loans sanctioned between April 1, 2019, and March 31, 2022. Under this Sec 80EEA of Income Tax Act, individuals can claim an additional deduction of up to ₹1.5 lakh on home loan interest payments, over and above the ₹2 lakh available under Section 24(b), provided the property's stamp duty value does not exceed ₹45 lakh. This deduction is available only to individual taxpayers who are not eligible to claim deductions under Section 80EE.

Eligibility Criteria to Claim Section 80EEA Deductions

The Section 80EEA deduction is exclusively available to “individual taxpayers”. This means that entities such as Hindu Undivided Families (HUFs), Associations of Persons (AOPs), partnership firms, companies, or any other taxpayers are not eligible to claim this benefit. Additionally, to avail of the Section 80EEA deduction, the taxpayer must opt for the old tax regime when filing their income tax return.

What are the Conditions for Claiming 80EEA Deductions?

To avail of the Section 80EEA deduction, the following conditions must be met:

Tax Regime: The taxpayer must opt for the old tax regime while filing their income tax return to get benefit from 80EEA tax deductions.
Loan Provider: The loan must be obtained from a financial institution or housing finance company.
Loan Sanction Period: The loan should have been sanctioned between April 1, 2019, and March 31, 2022.
Property Value: The stamp duty value of the residential house property should not exceed Rs. 45 lakhs for Sect 80EEA of Income Tax Deductions.
Section 80EE Ineligibility: The individual should not be eligible to claim a deduction under the existing Section 80EE.
First-Time Home Buyer: The taxpayer must be a first-time home buyer, meaning they should not own any residential house property as of the date of loan sanction.
Carpet Area Restrictions: The carpet area of the house property should not exceed:
- 60 square meters (645 sq ft) in metropolitan cities like Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai.
- 90 square meters (968 sq ft) in other cities or towns.
Project Approval: These carpet area restrictions apply to affordable real estate projects approved on or after September 1, 2019.
Resident/Non-Resident: Both Resident and Non-Resident Indians can claim this Section 80EEA deduction.
Self-Occupancy: The residential house does not need to be self-occupied to claim the Section 80EEA deduction.
Joint Ownership: Individuals can claim the deduction jointly or singly. If a person jointly owns the house with a spouse and both are paying the loan installments, both can claim the deduction.

By fulfilling these conditions, eligible taxpayers can reduce their taxable income through the Section 80EEA deduction. Learn more: Best Income Tax Saving Methods

How is the Section 80EEA Deduction Calculated?

The deduction under Section 80EEA is calculated based on the interest paid on a home loan, subject to a maximum limit and specific conditions. Here's how it works:

Maximum Deduction: The maximum deduction available under Section 80EEA is ₹1.5 lakh per financial year.
Interest Paid: The Section 80EEA deduction is determined by the actual interest paid on the home loan during the financial year.
Loan Amount Limit: This deduction applies only if the loan was taken for a house valued up to ₹45 lakh.
Comparison for Deduction: The deductible amount will be the lower of either the interest paid on the home loan or ₹1.5 lakh, whichever is lower.

This Section 80EEA deduction is available over and above the standard deduction under Section 24(b) for home loan interest, providing additional tax savings for first-time homebuyers. Also read: Section 80EE vs 80EEA: What is the Difference between Section 80EE and Section 80EEA?

Can I claim both 80EEA and Section 24?

Yes, you can claim deductions under both Section 24 and Section 80EEA. Section 24 of Income Tax Act allows a deduction of up to INR 2 Lakhs for home loan interest, regardless of whether the property is self-occupied or rented. Section 80EEA provides a separate deduction for first-time home buyers. If you meet the conditions for both sections, you can claim the tax benefits under both sections.

Tax Deduction Benefits for Home Loan and Construction

Below, we have provided useful information regarding the tax deduction benefits for home loans and construction:

Tax Deductions for Stamp Duty and Registration Charges

Stamp duty and registration fees incurred for property purchase can be claimed as tax deductions under Section 80C of the Income Tax Act. These expenses can be included within the overall limit of ₹1.5 lakh for principal payments. This benefit is applicable regardless of whether you have taken out a home loan. However, the deduction can only be claimed in the year these expenses are incurred.

Tax Deductions on Interest Paid for Properties Under Construction

For properties under construction, the Income Tax Act allows for the deduction of interest paid both before and after construction. Interest on pre-construction loans can be deducted in five equal annual installments starting from the year the property is acquired or completed. The maximum deduction allowed under Section 24(b) is 1/5th of the pre-construction interest (if any) plus the post-construction interest (if any), subject to a maximum limit of ₹2,00,000.

Tax Deduction on Home Loans Under Section 24(b)

Section 24(b) of the Income Tax Act permits the deduction of interest paid on a home loan. A maximum tax deduction of ₹2 lakh can be claimed annually from your gross income for a self-occupied residence, provided the construction or acquisition of the property is completed within five years.

Combining Section 24 and Section 80EEA

If you qualify for both Section 24 and Section 80EEA, you can claim benefits under both sections. First, exhaust your deductible limit under Section 24 (₹2 lakh), and then proceed to claim the additional benefits under Section 80EEA.

Tax Benefits on Joint Home Loans

When a home loan is taken jointly, each borrower can claim a deduction for home loan interest up to ₹2 lakh under Section 24(b) and a tax deduction for principal repayment up to ₹1.5 lakh under Section 80C. This doubles the number of deductions compared to a single-applicant home loan. However, both applicants must be co-owners of the property and contribute to the EMIs.

Tax Benefits on Second Home Loans

For a second home loan, you can enjoy the same tax benefits as for the first home. However, the total amount of deductions is subject to the relevant limits mentioned above. The government has introduced incentives for investing in real estate, allowing a second home to be considered self-occupied. Previously, only one property could be deemed self-occupied, and a second home was considered let out, resulting in notional rent taxation.

Conclusion

Section 80EEA offers a significant tax advantage to first-time homebuyers in India by providing an additional deduction on the interest paid on affordable housing loans. This provision was introduced to promote homeownership and alleviate the financial burden associated with purchasing a home. By understanding the eligibility criteria, conditions, and calculation methods outlined in this article, individuals can maximize their tax savings and make informed decisions when considering affordable housing options. Streamline your ITR filing process & utilize the Section 80EEA deductions with IndiaFilings!! [shortcode_37]