Home loans and income tax benefits often go hand in hand. In fact, income tax benefits form one of the main reasons why availing a home loan works out effective for an individual. There are many benefits that one can use to save money. The most commonly known being:
- Deduction of the principal amount repaid on a home loan in a year under Section 80C.
- Consideration of interest paid on a home loan as a loss and thus allowing for a deduction under Section 24.
- Section 80EE allows for an additional deduction of Rs 50,000 towards the payment of interest of a home loan.
However, there is another benefit available to home loan borrowers under Section 80EEA of the Income Tax Act, which is relatively unknown. We bring you more information on how you could benefit from using this Section in saving more tax.
“Under the objective of “Housing for all”, the government has very well extended the interest deductions allowed for low-cost housing loans taken by individuals. 80EEA allows an additional interest deduction of Rs 1,50,000 over and above Rs 2,00,000 allowed in Section 24. This deduction can be claimed by first-time homebuyers only with the property cost capped at Rs 45 Lakh. The important thing which needs to be taken care of to claim the benefits of section 80EEA is that one cannot buy another house within the same financial year,” explains Priya Agarwal, Founder, Steadfast Professionals.
Understanding the background
In 2014, the government launched Housing for All by 2022 mission. And to encourage homeownership, several measures were announced for first-time homebuyers. Announced in 2019, Section 80EEA was also a step in that direction.
In this year’s Union Budget, the finance minister extended the eligibility of this deduction by one more year to March 31, 2022. Here’s what the FM said during her budget speech:
“This Government sees ‘Housing for All’ and affordable housing as priority areas. In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 Lakh, for a loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to 31st March 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house.”
Now, since this benefit is only available for affordable homes, it is important to understand what constitutes it. Since September 2019, properties worth only up to Rs 45 Lakh qualifies as affordable homes. Thus, to avail benefit under Section 80EEA, the properties should not be priced over Rs 45 Lakh.
The Finance Bill 2021, as introduced in Lok Sabha, outlines the eligibility criteria clearly.
- The loan must be sanctioned from April 2019 to March 2022.
- The deduction limit under Section 80EEA is Rs 1.50 Lakh per year.
- The stamp duty value of residential house property should not exceed Rs 45 Lakh.
- The assessee should not own any residential house property on the date of sanction of the loan.
- Only individual buyers can claim deductions under this Section, which means companies, Hindu undivided families, etc., cannot claim benefits.
We spoke to Amit Goenka, MD & CEO, Nisus Finance to get some frequently asked questions answered.
What should be the carpet area of the property to claim deductions under Section 80EEA?
For properties located in metropolitan cities, the carpet area should not exceed 645 sq. ft. For other cities, the carpet area can be upto 968 sq. ft.
Can I claim deductions under both Section 80EE and Section 80EEA?
No, if you are claiming deductions under Section 80EE, you cannot claim deductions under Section 80EEA.
Are NRIs eligible for deduction under this Section?
Yes, if the NRI meets all the other requisites. The law does not specify whether a first-time buyer must be a resident of India to claim the deduction.
Do I need to self-occupy the property to claim deductions under Section 80EEA?
No, Section 80EEA does not specify that the property must be self-occupied.
Can joint owners claim deductions separately?
If the joint owners are also co-borrowers and they meet all other requisites, then yes.
I have invested in a plot. Am I eligible to claim deductions under Section 80EEA?
No, the law clearly states that deduction under Section 80EEA can only be claimed for the purchase of a housing unit.
Got more questions? Feel free to tell us in the comments below, and we will get it answered by our financial experts.