Did you know that the newly added Section 80EEA of the Income Tax Act (ITA) allows you tax benefits of upto Rs 3.5 Lakhs when combined with Section 24? Read on to know more.
To ensure that the objective “Housing for All by 2022” is met, the government has now inserted a new section – 80EEA. By introducing this section, the government has basically extended the interest deduction allowed for low-cost housing loans taken between April 1, 2019 and March 31, 2020. This will allow for an interest deduction from AY 2020-21 (FY 2019-20).
As per the already existing provisions available under Section 80EE, a deduction of up to Rs. 50,000 was allowed on the interest paid by a first-time homebuyer if the home loan was sanctioned from a financial institution between 1st April 2016 and 31st March 2017.
In order to further the benefit and give a boost to the real estate sector after its long slump, the government had extended the benefit until the FY 2019-20 as well. This deduction can be claimed until you have repaid the housing loan.
Features of Section 80EEA
Eligibility Criteria
Under this section, only individuals can claim a deduction. That is, the deduction is not applicable to any other taxpayer like a HUF(Hindu Undivided Family), an AOP (Association of People), a Partnership firm, or a company.
Amount of Deduction
Under this section, you can claim a deduction for the interest payment of up to Rs 1,50,000. This is over and above the deduction for interest payments of Rs 2 Lakhs, available under Section 24 of the Income Tax Act. This implies that if a taxpayer meets the conditions of Section 80EEA, they can claim a total deduction of Rs 3.5 Lakhs.
Other Conditions
This clause is similar to the one mentioned under Section 88EE of the ITA. You should not own any other house property on the date when the loan is sanctioned.
Conditions for Claiming the Deduction
- Stamp duty value of the residential property should not exceed Rs. 45 Lakhs
- Housing loan should be withdrawn from a financial institution or a housing finance company
- The individual taxpayer should not be eligible to claim deduction on interest payment under Section 88EE
- The individual should be a first-time homebuyer
- If the residential property is in a Metro City (including Bangalore, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region), its Carpet Area should not exceed 645 Sq. Ft. (660 SQM)
- For a house in any other city than the ones mentioned above, the Carpet Area should not exceed 968 Sq. Ft. (90 SQM).
All the conditions implied in respect to the Carpet Area would be effective on affordable real estate projects approved on or after 1st September 2019.
On earlier occasions, several amendments have been made on Section 80EE regularly to allow a deduction for interest paid on housing loan for the FY 2013-14, FY 2014-15, and FY 2016-17. With the introduction of Section 80EEA, the benefits allowed under Section 80EE would be made available to low-cost housing too.
It is nowhere mentioned in the Section clause list if one needs to be a Resident of India to be able to claim this benefit. Hence, it can be concluded that both resident as well as non-resident Indians can claim this deduction.
It also does not specify if the housing property should be self-occupied by the individual. Hence, one living in rented accommodation can also claim this deduction.
The good thing is that if a person jointly owns the house with a spouse and both of them are paying loan instalments, they both can then claim the deduction, provided they meet all the conditions laid out.
Section 80EEA and Section 24
Under Section 24, an individual can claim a deduction for interest payments up to Rs 2 Lakhs. This deduction is applicable if the owner or their family resides in the house property, and even when the house is vacant. If the property has been rented out, the entire home loan interest is allowed as a deduction.
If an individual is able to satisfy the conditions of both Section 24 as well as Section 80EEA of the Income Tax Act, they can claim the benefits under both the sections. The total benefit then amounts to Rs 3.5 Lakhs. First, they need to exhaust their deductible limit (that is, Rs 2 Lakhs) under Section 24. After this, they can move on to claim the additional benefits (that is, Rs 1.5 Lakhs) under Section 80EEA. Therefore, this deduction is over and above the Rs 2 Lakhs deduction allowed under Section 24 of the ITA.
