“Happiness is buying your first home”

Indeed, the happiness of buying your first home is different. Especially, after going through a tedious process that begins with – finding the right home that fits within your budget and meets your needs – to the even more gruelling steps of availing a home loan.

However, this home loan can turn out to be beneficial for the first time buyer- taxpayer.

Tax benefits are available under Section 80EE for interest paid on loans (taken by a first time buyer-taxpayer) for the purpose of buying a residential property.

You (the taxpayer) can claim a deduction of up to Rs 50,000 every financial year as per this Section. The deduction can be claimed until you have fully repaid the loan.

What is Section 80EE of the Income Tax?

Section 80EE allows Income Tax Benefit on Interest on Home Loan to first time buyers in the following events:

  • This deduction is available only if the purchase price of the property is less than Rs 50 lakhs and the loan amount is less than Rs 35 lakhs.
  • The loan should be approved between April 1, 2016 and March 31, 2017.
  • The benefit of this tax deduction would be available as long as the loan is being paid.
  • From the Financial Year (FY) 2016-17 onwards, this deduction will be available to the eligible taxpayers.

The following is a simple version of the above-mentioned section on home loan tax benefits:

Particulars Quantum of Deduction (Rs)
Self-Occupied Property Non-Self Occupied Property

Section 24 (Interest)

2,00,000

No Limit

Section 80C (Principal)

1,50,000

1,50,000

Section 80EE (Interest)

50,000

50,000

Terms for Claiming Tax Benefits under Section 80EE

The conditions associated with claiming deductions under Section 80EE are as follows:

  • Tax Deductions under Section EE are only available for the taxpayer's first house purchase.
  • The deduction is only available if the house's market value is less than Rs 50,00,000.
  • The tax deduction under this Section is available only if the amount borrowed as a home loan is not more than Rs 35,00,000.
  • The loan should be approved between 1st April 2016 and 31st March 2017.
  • Only the interest amount of the house loan is eligible for the tax deduction.
  • It is compulsory that a recognised financial institution, like a housing finance company, a bank, or a non-banking financing company, approves the home loan taken by the taxpayer.
  • A taxpayer would be expected to present the bank's declaration clearly stating the amount owed and paid towards interest and principal in order to claim the tax deduction under Section 80EE.
  • The taxpayer who takes advantage of this deduction must not own another home at the time the loan is approved.
  • The tax deduction is only available if the house loan is taken for residential purpose and not for commercial purposes.
  • The tax deductions under Section 80EE are based per person and not per household. So, if a taxpayer bought a house together and took out a shared home loan, each person repaying the loan amount is eligible to claim the deduction separately.
  • After declaring the above deductions of tax benefit on home loan, the balance Income of a person would be taxed as per the Income Tax Slab rates.

What is the eligibility criteria to claim tax deduction under Section 80EE?

The following are the requirements for claiming a deduction under Section 80EE:

  • Under this Section, the individual taxpayers can claim tax deduction either individually or jointly.
    • If a person and his or her partner bought a house at the same time and are both making loan payments, then both of them are eligible for this tax deduction.
  • Only first-time home buyers are eligible for Section 80EE tax deduction. This means that the taxpayer must not own any residential house property at the time the loan is being approved.
  • The taxpayer must have received the loan from a financial institution or bank to be eligible for this deduction.
  • The tax deduction under Section 80EE is available as per person and not per property.
  • This section allows you to claim a maximum deduction of Rs 50,000.
  • As per Section 24, this tax deduction is above the limit of Rs 2,00,000.
  • The tax benefit can be claimed regardless of whether the taxpayer lives in the house or rents it out to someone else.
  • For example - You are still eligible to claim this deduction if you own a house in Pune but live in a rental property in Mumbai.

Who are not eligible to claim tax deduction under Section 80EE?

The following are not eligible to claim tax deduction(s) under Section 80EE:

  • Association of Persons (AOP),
  • Hindu Undivided Families (HUF),
  • Companies,
  • Partnership Firms or LLP,
  • Trusts, and so on.

How to claim tax benefits under Section 80EE?

Here is what must be done to determine how much tax deduction can be claimed under Section 80EE:

  • Calculate the total amount of interest paid on a property loan over the course of a Financial Year (FY).
  • Claim a deduction up to Rs 2,00,000 (under Section 24(b) of the Income Tax Act, 1961) once the total interest amount paid is calculated.
  • The extra amount can be claimed up to Rs. 50,000 under Section 80EE of the Income Tax Act, 1961.

How to claim tax benefits under Section 80EE and Section 24?

If you meet the requirements of both Section 24 and Section 80EE of the Income Tax Act, file your claim as soon as possible.

  • First, use out your Section 24 deductible limit of Rs 2 lakh.
  • Then, under Section 80EE, claim an additional tax benefit of Rs 50,000.

As a result, a total deduction of Rs 2,50,000 can be claimed.

What is the difference between Section 80EE and Section 80EEA?

The new Section 80 EEA in the Union Budget 2019 increases the tax benefits of the interest deduction up to Rs 1,50,000 for housing loans availed for affordable housing between 1st April, 2019 and 31st March, 2020. However, the individual taxpayer should be a first-time home buyer who is not eligible for the Section 80EE tax deduction.

Conclusion

As one can see, Section 80EE can result in huge annual savings. If you have a current home loan that you are repaying off, you should take advantage of Income Tax Section 80EE. Ensure that you use the tax deductions available under this Section and receive the much needed relief from paying taxes.

To get many more tax-saving tips, consult our trusted financial advisors NOW!