Section 80EEA and how it is encouraging the working class to own a house

We all know that a home loan comprises two components- Interest and Principal.

There are different sections in the tax law under which deductions are granted for home loan borrowers. And the three most important sections are:

1. Section 24(b)
2. Section 80EE
3. Section 80EEA

Section 24 (b) allows us to claim a deduction of up to Rs.2 Lakhs on the interest component, and under section 80C, one can claim a deduction of up to Rs.1.5 lakhs on the principal component.

These have been there for some time now. Two new sections called Section 80EE and Section 80EEA, have been introduced through which a person with a home loan can enjoy additional benefits. Section 80EEA benefits First Time Home Buyer. These First Time Home Buyer Tax Benefits can be claimed if a borrower meets certain eligibility criteria. The details regarding the eligibility criteria are also discussed in this article.

Section 80EEA and who this is for?

If a person buys a property using a home loan, they can enjoy some additional deductions on the income tax, provided he is a first-time homebuyer. Under Income Tax Act, 1961, some provisions were made to help people buy houses at affordable prices.

When was Section 80EEA introduced?

Of the many programs launched by the Narendra Modi government when it first came into power in 2014, Pradhan Mantri Awas Yojana or PMAY was launched to encourage home buyers. The centre has decided to offer subsidies to advance this cause. To upgrade this scheme, several measures, such as the introduction of Section 80EEA, were taken. This was introduced in 2019.Thanks to Section 80EEA, any home loans taken during the period between April 1, 2019, and March 31, 2021 (which was later extended until March 31, 2022) are eligible for us to claim interest deductions.

Definition: Section 80EEA of the Income Tax Act:

The term Section 80EEA was first coined by Finance minister Nirmala Sitharaman. This was a part of Union Budget 2019 to further promote the dream of “Housing for All by 2022” with one chief motive, providing tax benefits so that people can buy houses at economical rates.

Deduction amount under Section 80EEA

Before introducing Section 80EEA, people were able to save an amount of Rs 2 lakhs under Section 24(b). With Section 80EEA in effect, people can save an additional Rs 1.5 lakhs per year on the interest while paying the home loan in instalments.

Here is the gist of Nirmala Sitharaman’s statement regarding housing loans during the budget speech in 2019 :

An interest reduction of up to Rs 2 Lakhs can be claimed. An additional deduction of Rs 1.5 lakhs will be allowed for interest paid on loans taken before or up to March 31, 2020, for a house valuing Rs 45 lakhs. Hence, a home buyer can now enjoy an interest deduction of up to Rs 3.5 lakhs. This was extended for another year.

Meaning of affordable housing

Before Section 80EEA was introduced, properties valued up to Rs 50 lakhs fell under the category of ‘affordable homes.’ Post inclusion of Section 80EEA in the income tax law, properties priced up to Rs 45 lakhs fall under ‘affordable homes’ since September 1, 2019.

Eligibility criteria to avail of these benefits(Tax Benefit For First Home Purchase)

Here are the details about who may claim these benefits under Section 80EEA.

• These deductions are on home loan interest only.
• The person should be a first-time homebuyer to reap the benefits under Section 80EEA. The clause specifies that to avail of these benefits, the home loan borrower shouldn’t have any previous properties.
• The maximum deduction one can claim Rs 1.50 lakhs per year.
• This home loan interest deduction is only for the home loans granted between April 1, 2019, and March 31, 2022.
• Only individuals with a housing loan are allowed to enjoy these benefits. This scheme is exclusively for the individuals who have taken home loans and any other taxpayer such as Hindu Undivided Families or HUF, Partnership firm, a company, AOP, is not allowed any benefits that come as a part of the scheme.
• To claim these benefits, the home loan should be borrowed from a financial institution, i.e. banks, housing finance companies, and the deductions do not apply to the home loans borrowed from relatives, family members, or friends.
• The deductions apply to the properties valued up to Rs 45 Lakhs and not to the properties exceeding this limit.
• It is crucial to note that these benefits can only be claimed if the loans are used to buy the properties and cannot be claimed if used for reconstruction, maintenance, or any other repairs, etc.
• Only a home loan buyer not claiming any benefits under Section 80EE can claim the deductions under Section 80EEA.

Are NRIs eligible for the deductions under Section 80EEA?

The law doesn’t specifically mention any restriction that the first-time buyer should only be an Indian resident to avail of these benefits. So it is inferred that even Non-resident Indians can claim the benefits under Section 80EEA.

Terms and conditions to claim benefits under Section 80EEA

The law states that these benefits apply to properties with sizes up to 645 sq ft or 60 sq meters if located in metropolitan cities. The size should not exceed 968 sq ft or 90 sq meters if the unit is located in any other city.

Which cities come under the category of metropolitan cities under Section 80EEA?

These are the cities that fall under the category of metropolitan cities

• Bangalore
• Delhi
• Chennai
• Faridabad
• Hyderabad
• Kolkata
• Mumbai
• Noida
• Gurugram
• Greater Noida
• Ghaziabad

What if the unit is not self-occupied? Can a person still claim the benefits under Section 80EEA?

The law does not mention any such specification. Therefore, the buyers living in rented units can claim these deductions. In addition to these, they can also claim HRA benefits which come as a part of Section 80GG.

Few differences between Section 80EEA and Section 24(b)

Home loan buyers can claim the benefits of Section 24(b) as well as Section 80EEA. This increases their non-taxable income up to Rs 3.50 lakhs, provided all other eligibility criteria are met.

• Possession of the property is mandatory to claim the benefits under Section 24(b). It is not required for you to possess the property to claim the deductions for the interest on a home loan. You can claim the deductions immediately as you start paying the interest.
• Under Section 24(b), deductions can be claimed for any loans borrowed from financial institutions or personal sources. But benefits under Section 80EEA apply to the loans borrowed from banks.
• The maximum deduction one can get under Section 24 (b) is Rs.2 lakhs if the owner lives in the property. This also applies if the house is vacant. The whole interest is allowed as a deduction if the property is rented out. Under Section 80EEA, the maximum deduction limit is Rs 1.50 lakhs.
• While the property value must not exceed Rs 45 lakhs to avail of the benefits under Section 80EEA, there is no property value specification to claim benefits under Section 24(b).
• Any loans granted after April 1, 1999, are eligible for deductions under Section 24(b). Loans sanctioned between April 1, 2019, and March 31, 2021, are eligible for deduction benefits under Section 80EEA.
• All home loan buyers (even if they already own a property) are entitled to the benefits under Section 24(b). Only the first-time individuals(home buyers) are allowed to claim deductions under Section 80EEA.
• It is vital to understand Section 80C according to which to claim these benefits; the individuals should not sell the property in 5 years.

Understanding the differences between Section 80EEA and Section 80EE

The buyers demanding benefits under Section 80EE are not allowed to claim benefits under Section 80EEA according to income tax law.

• The deductions under Section 80EE can be claimed on properties worth up to Rs 50 lakhs. The benefits under Section 80EEA can be claimed on properties valued up to Rs. 45 lakhs.
• The loan amount specification to claim the benefits of Section 80EE is up to Rs 35 Lakhs, and this specification is not specified in Section 80EEA.
• The home loans taken between April 1, 2016, and March 31, 2017, are eligible to claim the benefits of Section 80EE. The loan period in the case of Section 80EEA is between April 1, 2019, and March 31, 2021.
• A maximum rebate of Rs 50000 is allowed under Section 80EE while it amounts to Rs 1.5 lakhs in the case of Section 80EEA.

Does Section 80 EEA apply to loans bought in 2016?

The answer is no. The law specifically states that this is applicable only on the loans sanctioned between April 1, 2019, and March 31, 2021. And the deductions under Section 80EEA do not apply to loans granted before or after this period.

Conclusion:

To encourage the people of India to have their own houses, the government of India, with an objective of housing for all, extended its support by introducing section 80 EEA. It is an extension of section 80EE under which a deduction of up to Rs.50000 is allowed on the loans sanctioned between 1 April 2016 and 31 March 2017 for first-time home buyers. The benefit has been extended by the government for FY 2019-20. You can now claim the deduction until the housing loan is paid off.

Under Section 80EE, the interest deduction can be claimed if a house loan is taken in AY 2020-21 or FY 2019-20.

The government takes these steps to uplift the real-estate sector in the small housing category.

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