Income tax benefits on home loan

Section 80EE was initially introduced in the financial year 2013-14 and 2014-15 for individual taxpayers to avail of the tax deduction on interest on housing loans. However, 80EE of the Income Tax Act 1961 was re-introduced in the financial year 2016-17. Section 80EE was introduced in the 2019 Budget to help first-time home buyers.

The deduction under section 80EE shall be subject to these conditions: To avail of the deduction of section 80EEA, the assessee must be an individual and the interest is payable on the loan taken by him. The loan taken must be for the purpose of buying a flat or acquisition of a residential property. The deduction amount shall not exceed Rs 50,000. The amount of loan sanctioned for buying a flat or acquiring a residential property shall not exceed Rs 35 lakh. The value of the flat, house or residential property shall not exceed Rs 50 lakh. The individual assessee must not own any flat or residential house property on the date of sanction of loan. The housing loan must be obtained from any financial institution or bank. The bank or institution must be under the purview of the Banking Regulation Act 1949 (10 of 1949), any financial institution or any bank mentioned in section 51 of that Act.

In the financial year 2019-20, a new section 80EEA was introduced to replace section 80EE in order to allow extended interest deductions on housing loans. The finance minister introduced 80EEA in the Union Budget 2019 to boost the ‘Housing for All by 2022’ programme by offering additional deductions on purchasing affordable homes. Section 80EEA helps first-time home buyers avail of an additional deduction of Rs 1.50 lakh per year, which is over and above the Rs two lakh deduction limit available under Section 24 (b). The eligibility to avail of deduction under section 80EEA is subject to some conditions as specified in the Finance Bill 2019.

Borrowers whose home loans are sanctioned between 1 April 2019 and 31 March 2022 are eligible to claim a deduction under section 80EEA. Further, this definition will be effective for affordable real estate projects approved on or after 1 September 2019. Only first-time home buyers are eligible to avail of benefits under section 80EEA. This means the borrower or the assessee should not own any flat, dwelling unit or residential property at the time of grant of the home loan. There is no deduction or exemption on the home loan principal amount. The deduction can be claimed against the interest amount only. The upper limit for deduction against home loan interest is Rs 1.50 lakh per year. If the joint owners are also co-borrowers, they both are eligible to claim Rs 1.50 lakh each as deductions under section 80EEA, provided both meet all the other conditions. The assesses those who bought an affordable home, but are living in rented accommodations are eligible to claim deductions while claiming HRA benefits under Section 80GG.

The eligibility of 80EEA for buying an affordable home is subject to the carpet area of the flat or residential property. In order to claim additional deduction under section 80EEA, the carpet area has been limited to 90 square metres or 968 square feet if a flat, house or dwelling unit is located anywhere in India except in metropolitan cities. The carpet area has been limited to 60 square metres or 645 square feet if a flat, house, or dwelling unit is located in the metropolitan cities of Delhi National Capital Region (Delhi, Gurgaon, Noida, Greater Noida, Ghaziabad, Faridabad), Mumbai Metropolitan Region, Kolkata, Chennai, Bengaluru, and Hyderabad. Buyers of a flat, a dwelling unit or a residential house property can claim the benefit. Significantly, the loan must be borrowed to buy a flat, a dwelling unit or a residential house property and not for reconstruction, repair, renovation, etc. If an assessee already availed the benefit under 80EE and is claiming deductions under Section 80EE, the assessee cannot claim deductions under Section 80EEA. The deduction under 80EE or 80EEA (whichever case applies to the assessee) can be claimed till the repayment of the housing loan.

Applicability or eligibility for deduction under section 80EEA is subject to the cost of the house or dwelling unit. The Stamp duty value of the flat, dwelling unit or residential property shall not exceed Rs 45 lakh. However, to avail of the deduction of section 80EEA, the assessee must be an individual and the interest is payable on the loan taken by him. The housing loan must be taken from any financial institution, bank or housing finance company to buy an affordable flat, dwelling unit, or residential house property. The financial institution, bank, or housing finance company must be under the purview of the Banking Regulation Act 1949 (10 of 1949) or mentioned in section 51 of that Act.

From 1st April 2022, the government discontinued income tax deductions under Section 80EEA for first-time home buyers. Buyers will not be able to avail of tax benefits under Section 80EEA from 1st April 2022. However, those who got a housing loan sanctioned on or before 31 March 22 and bought a home or flat are eligible to avail deduction till the loan is fully repaid.

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