Section 80EEA - Deduction for Interest on Home Loan

Section 80EEA of the Income Tax Act provides a significant tax benefit for first-time homebuyers. Introduced in the Budget 2019, this section allows eligible individuals to claim a deduction of up to Rs 1.5 lakhs per year against the interest payment on their home loan. The purpose of this provision is to encourage home ownership, particularly among individuals purchasing their first residential property. The deduction can be claimed in addition to other existing deductions available under sections like 24(b) and 80C, provided the taxpayer meets the specified conditions.

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What is Section 80EEA of Income Tax?

Section 80EEA of the Income Tax Act, 1961, is a provision to make housing more affordable for first-time homebuyers in India. It offers an additional tax benefit on the interest paid on home loans taken for purchasing or constructing an affordable house. This deduction is on top of the existing deductions available under Section 24 (interest on housing loan for self-occupied property) and Section 80C (general deductions) of the Income Tax Act. With Section 80 EEA, eligible individuals can claim a deduction of up to Rs. 1.5 lakh per financial year on the interest portion of their home loan. This can significantly reduce their taxable income and lower their tax liability.

Section 80EEA of Income Tax Eligibility Criteria

Below is the Section 80EEA eligibility:

Section 80EEA deductions are exclusively for individuals and cannot be claimed by any other type of taxpayer, such as a Hindu Undivided Family (HUF), Association of Persons (AoP), partnership firm, company, or any similar entity. Additionally, to avail of this deduction, the taxpayer must choose the old tax regime.

What are 80EEA Exemptions?

It's an additional tax deduction of up to Rs. 1.5 lakh per year on the interest paid for a home loan on an affordable property. This is over and above the deductions you can already claim under Section 24 (interest on home loan) and Section 80C (general deductions).

Tax Benefits on Home Loan (FY 2023-24)

Below are the tax benefits under the various sections of the Income Tax Act, 1961:

Income Tax Act Deduction Limit
Section 80C Annual principal component of housing loan repayment: Rs. 1.5 lakh.
Section 80 EEA Annual interest component of housing loan repayment: Rs. 1.5 lakh. 
Section 24 Annual interest component of housing loan repayment: Rs. 2 lakh.

Other conditions

To qualify for a deduction under Section 80 EEA, you must not possess any additional residential property at the time the loan is approved.

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How is the Deduction Calculated Under Section 80 EEA?

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

  • Maximum Deduction: The maximum deduction you can claim under Section 80 EEA is Rs. 1.5 lakh per financial year.

  • Interest Paid: The deduction is based on the actual interest you paid on your home loan during the financial year.

  • Loan Amount Limit: This benefit applies only if the loan amount is for a house valued up to Rs. 45 lakh.

  • Comparison: Whichever is lower, the interest you paid or the Rs. 1.5 lakh limit is the deduction you can claim under Section 80 EEA.

Example:

Let's say the interest you paid on your home loan in a financial year is Rs. 3 lakh. But, the loan amount itself is Rs. 50 lakh (which is more than the Rs. 45 lakh limit). In this case, since you don't meet the loan amount condition, you wouldn't be eligible for any deduction under Section 80 EEA.

Conditions for Claiming the Deduction Under Section 80 EEA 

  • Tax Regime: You must choose the old tax regime while filing your income tax return.

  • Loan Source: The home loan must be taken from a financial institution or a housing finance company.

  • Loan Sanction Date: The loan sanction should have happened between April 1st, 2019 and March 31st, 2022.

  • Property Value: The stamp duty value of the residential house property must be Rs 45 lakh or less.

  • Not Eligible for Section 80EE: You cannot claim a deduction under both Section 80 EEA and the existing Section 80EE.

  • First-Time Buyer: You must be a first-time homebuyer. This means you cannot own any residential property on the date the loan is sanctioned.

  • Carpet Area Limits:

    • Metropolitan Cities: The carpet area of the property should not exceed 60 square meters (645 sq ft) in these cities: Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai.

    • Other Cities: The carpet area should not exceed 90 square meters (968 sq ft) in any other city or town.

    • Effective Date: This definition applies to affordable real estate projects approved on or after September 1st, 2019.

Tax Deductions for Stamp Duty and Registration Charges

You can also seek tax deductions for stamp duty and registration fees under Section 80C of the Income Tax Act. However, these deductions must fall within the total limit of Rs 1.5 lakh applicable to principal repayments. This deduction is applicable regardless of whether you have taken a home loan or not. It's important to note that this deduction can only be claimed in the year the expenses are accrued.

Tax Deductions on Interest Paid for Properties Under Construction

The Income Tax Act permits the deduction of interest during both the pre-construction and post-construction periods. Interest on loans taken during the pre-construction phase can be deducted in five equal annual instalments, starting from the year when the residential property is acquired or completed. Consequently, the total interest deduction available to a taxpayer under Section 24(b) is one-fifth of the pre-construction period interest (if any), plus the interest from the post-construction period (if any), capped at a maximum of Rs. 200,000.

Tax Deduction on Home Loans Under Section 80EE and Section 24(B)

Section 24(B) of the Income Tax Act permits the deduction of interest paid on your home loan. For a self-occupied residence, you can claim a maximum tax deduction of Rs. 2 lakh annually from your gross income, provided the construction or acquisition of the house is completed within five years.

If you meet the criteria outlined in both Section 80EE and Section 24 of the Income Tax Act, you are eligible to avail of the benefits under both sections.

Initially, use your deductible limit of Rs. 2 lakh under Section 24, and then proceed to claim additional benefits under Section 80 EEA. This deduction is supplementary to the Rs. 2 lakh limit permitted under Section 24.

Tax Benefits on Joint Home Loan

When multiple individuals jointly take out a home loan, each borrower is eligible to claim a deduction for home loan interest of up to Rs 2 lakh under Section 24(b), as well as a tax deduction for principal repayment of up to Rs 1.5 lakh under Section 80C. This effectively doubles the available deductions compared to a single-applicant home loan. However, it is essential that both applicants are co-owners of the property and contribute towards paying the EMIs.

Tax Benefits on Second Home Loan

If you opt for a second home loan to purchase another property, you're eligible for similar tax benefits, yet the total deductions are bound by the applicable restrictions outlined previously. The government has also introduced additional incentives for real estate investment in the 2019 Union Budget. Previously, only one property could be designated as self-occupied, while a second home was automatically considered as rented out, leading to the calculation of notional rent which was then taxed as income. However, now a second home can be classified as self-occupied.

80EE and 80EEA Difference

Difference between 80EE and 80EEA is:

Feature Section 80EE Section 80 EEA
Maximum Deduction ₹50,000 ₹1,50,000
Property Value Limit Not Specified Up to ₹45 lakh
Replaced Section NA Introduced to replace Section 80EE for affordable housing

FAQs

  • What is the deduction limit under Section 80 EEA?

    First-time home buyers can claim a deduction of up to Rs 1,50,000 per year against the interest payment on their home loan under section 80 EEA.
  • When was Section 80 EEA introduced?

    Section 80 EEA was introduced in the Budget 2019 and extended until March 2022 during the Budget 2021.
  • Can I claim both 80EE and 80EEA?

    No, individuals cannot claim rebates under both Section 80EE and Section 80 EEA simultaneously.
  • Can joint owners claim deduction under section 80 EEA separately?

    If joint owners meet all conditions specified in the Income Tax Act, they can each claim a deduction of Rs 1.5 lakh.
  • How much deduction can I claim out of the total repayment of a housing loan made during the financial year?

    You can claim up to Rs.1.5 lakh for principal repayment under section 80C. For interest payments, claim up to Rs.2 lakh under section 24(b), then further deductions up to Rs.1.5 lakh under section 80 EEA if eligible.
  • Does home loan protection insurance provide tax benefits?

    Yes, you can claim a tax deduction under Section 80C for the amount paid towards home loan protection insurance. However, if the premium is financed through EMIs, the deduction is not allowed.
  • Can I avail deductions under sections 24 and 80 EEA at the same time?

    Yes, deductions under sections 24 and 80 EEA can be claimed simultaneously.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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