Section 80EE of the Income Tax Act

Borrowers securing home loans from financial institutions often look for tax benefits to reduce their liability. In this regard, the reintroduced Section 80EE of the Income Tax Act provides tax benefits on the home loan interest payments.

If you too want to enjoy this benefit, you might consider going through the following piece on Income Tax Section 80EE deductions on housing loan interest rates.

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What Is Section 80EE?

Section 80EE of the Income Tax Act was designed for individual taxpayers in FY 2013-14. Further it was amended in the Finance Act 2017. Under this section, home loan borrowers could avail of a tax deduction on the interest paid.

However, Section 80EE was amended in FY 2016-17, and the deduction limit was set forth to ₹50,000 for interest paid towards a home loan.

Before you claim these deductions, you must be aware of the 80EE eligibility and other conditions associated with it.

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Eligibility Criteria to Claim Deductions Under Section 80EE?

To qualify for Income Tax deductions under 80EE, borrowers must ensure to follow the below-mentioned eligibility criteria -

Individual taxpayers who secure a home loan individually or jointly can claim these benefits. Thus, the tax deductions are not available to the Association of Persons (AOP), Hindu United Families (HUF), companies, trusts etc.
Assessees who do not own a residential property on the date of loan sanction can claim this deduction. Further, they should secure a housing loan from any financial institution as described by the Banking Regulation Act, 1949.
Taxpayers do not require to reside in their purchased property to avail of tax benefits. Therefore, individuals residing in rented homes can also claim tax deductions.

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What Are the Conditions to Claim Deductions Under Section 80EE?

Before you claim home loan interest deduction under 80EE, here are the conditions you need to fulfil -

A taxpayer can claim tax benefits on their first home purchase only.
The value of a property should not be more than ₹50 lakhs.
Borrowers availing a home loan amount of ₹35 lakhs or less can claim deductions.
Under 80EE, deductions for only the interest amount are available.
Home loans sanctioned by any housing finance company or financial institution as per the Banking Regulation Act, 1949 will be eligible for tax deductions.
As per the date of loan sanction, a borrower must not be an owner of another property.
Loans for commercial properties are not claimable for tax deductions.
The loan must be sanctioned between 01.04.16 to 31.03.17.

Now that you know everything about Section 80EE deductions on housing loan interest, you can proceed with the claim procedure.

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How to Claim Deductions Under Section 80EE?

Before you know how to claim deduction under Section 80EE, let’s understand the calculation of tax benefits with the help of an example.

Say you plan to buy a property worth ₹40 lakh and decide to take a home loan. In this regard, a financial lender approves 80% of the property’s value as your sanctioned loan amount, and the rest needs to be paid by you as a down payment.

So, the loan amount will be ₹32 lakh.

Now, your financial lender offers you a loan at a 6.7% interest rate for a tenure of 20 years.

To calculate EMI, we use the formula-

EMI = [P x R x (1+R)^N]/[(1+R)^N-1].

Here, P = ₹32 lakh

R = 6.7%

N = 20 years

Hence, EMI = ₹24,237.. The total interest outgo in 20 years will accumulate to ₹26,16,788

Every EMI comprises a principal component and an interest component. You should go through the loan statement and compute the yearly principal amount and yearly interest amount paid by you via EMIs. Post that, you can claim deductions under respective sections of the IT Act.

Here the deduction will be allowed as the home loan amount is within the eligible home loan limit of Rs. 35 Lakhs.

You can claim benefits up to ₹2 lakh per year under Section 24 on the interest outgo. Further, the Section 80EE deduction limit is ₹50,000, which is over and above the ₹2 lakh limit.

If your taxable income is ₹7 lakh per annum after all other deductions, there will be a deduction of ₹2 lakh under Section 24 and an additional ₹50,000 under 80EE under the old tax regime.

Ideally, you should exhaust the deductible limit under Section 24 before claiming benefits under Section 80EE.

Section 80EEA has been introduced in the Budget 2019 providing an additional tax benefit with a significant vision to promote affordable housing to the first time buyers starting from FY 2019-2020. This deduction can be claimed until the assessee repays the housing loan.

To claim deductions under Section 80EE of the Income Tax Act while filing tax returns, you need to follow three steps:

Calculate the interest paid towards your home loan for a particular financial year.
Claim deduction up to ₹2 lakh under Section 24.
From the remaining amount, you can claim up to ₹50,000 under Section 80EE of the Income Tax Act, 1961.

By knowing about the Income Tax deductions under 80EE, you can claim benefits on the interest paid for your home loan in a seamless manner. Thus, if you plan to purchase a property for the first time and wonder about the tax benefits, referring to this piece can be a good start.

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Frequently Asked Questions

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Can I claim tax benefits for an under-construction property?

Yes, you can claim tax benefits under Section 24(b) of the Income Tax Act on the interest paid for a home loan. You can claim the amount in 5 equal instalments after completion of construction.

Can I claim the 80EE deduction every year?

Individuals can claim deductions up to ₹50,000 under Section 80EE for a particular financial year. You can continue claiming this amount till you fully repay the loan.

Is Section 80EE benefit available for home construction?

You can claim benefits under Section 80EE with respect to your home loan for the acquisition of a residential property. So, the 80EE benefit does not apply to the construction of a home.

Section 80EE of the Income Tax Act

What Is Section 80EE?

Eligibility Criteria to Claim Deductions Under Section 80EE?

What Are the Conditions to Claim Deductions Under Section 80EE?

How to Claim Deductions Under Section 80EE?

Frequently Asked Questions

Can I claim tax benefits for an under-construction property?

Can I claim the 80EE deduction every year?

Is Section 80EE benefit available for home construction?

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