Maximizing Savings with Section 80EEA: A Guide to Home Loan Tax Deductions

Buying a home is a significant milestone, and in India, it comes with the added benefit of various tax deductions. One such benefit is under Section 80EEA deduction of the Income Tax Act, which offers tax relief to homebuyers. Understanding these benefits can greatly aid in financial planning and reduce the overall cost of buying a home.

Table of Contents

• Understanding Section 80EEA of Income Tax Act
• 80EEA Deduction Eligibility Criteria
• Section 80EE vs Section 80EEA
• Tax Benefits on Home Loans

Understanding Section 80EEA of Income Tax Act

Section 80EEA was introduced to encourage affordable housing. It allows additional tax deduction on interest paid on home loans for a residential property. This provision is over and above the deduction available under Section 24(b) and Section 80C.

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80EEA Deduction Eligibility Criteria

To avail of this deduction, you must meet specific criteria:

• The home loan must have been sanctioned between April 1, 2019, and March 31, 2022.
• The stamp duty value of the house should not exceed ₹45 lakh.
• The taxpayer should not own any residential property on the date of sanction of the loan.
• Those who took a home loan on/after April 1, 2022 can avail the benefits by opting for the old tax regime.

1. Quantum of Deduction

The maximum deduction available under Section 80EEA is ₹1.5 lakh per annum. This is in addition to the ₹2 lakh deduction under Section 24(b) and ₹1.5 lakh under Section 80C for home loan repayment.

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2. Affordable Property under Section 80EEA

For the purposes of Section 80EEA, a property is considered affordable if its value is at most ₹45 lakh. Additionally, there are specific carpet area requirements to qualify. In metropolitan cities, the property's carpet area must be below 645 square feet (sqft) or 60 square metres (sqm). For properties in non-metropolitan areas, the limit is set at 968 sqft or 90 sqm.

3. Claiming the Deduction

To claim this deduction, you need to provide details of the interest paid on the home loan while filing your income tax return. Ensure you have all the necessary documents, such as the loan sanction letter and interest certificates from the bank.

4. Limitations on Section 80EEA

• The deduction is only applicable for first-time homeowners.
• It is valid for residential properties only.
• The loan must be taken from a financial institution or a housing finance company.

Example

For example, consider Mr. Sharma, who bought a house worth ₹35 lakh and took a home loan with an annual interest of ₹3.5 lakh. He can claim ₹2 lakh under Section 24(b) and an additional ₹1.5 lakh under Section 80EEA, thereby saving a significant amount on taxes.

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5. Comparison with Other Sections

While Section 80C covers principal repayment, Section 80EEA focuses solely on interest payment, providing an added advantage. Taxpayers can strategically plan their taxes by combining these deductions.
Section 80EEA is a boon for first-time homeowners. By understanding and utilizing these provisions effectively, taxpayers can significantly reduce their financial burden.

Difference between Section 80EE and Section 80EEA

Tax Benefits on Home Loan (FY 2024-25)

Purchasing a home comes with several tax benefits that can significantly reduce the overall cost of borrowing. Here are the key tax benefits available on home loans for the financial year 2024-25:

1. Deduction on Interest Paid (Section 24(b))

Self-Occupied Property: Homeowners can claim a deduction of up to ₹2 lakh on the interest paid on a home loan for a self-occupied property.
Let-Out Property: For let-out properties, there is no upper limit on the interest deduction. However, the total loss that can be set off under the head "Income from House Property" is capped at ₹2 lakh, with the remaining loss carried forward for up to 8 years.

2. Deduction on Principal Repayment (Section 80C)

Limit: You can claim a deduction of up to ₹1.5 lakh under Section 80C for the principal repayment of a home loan. This also includes payments made towards stamp duty and registration fees.

3. Additional Deduction for First-Time Homebuyers (Section 80EE)

Eligibility: First-time homebuyers can claim an additional deduction of up to ₹50,000 on interest paid under Section 80EE, provided the loan amount does not exceed ₹35 lakh, and the property value does not exceed ₹50 lakh. The loan should have been sanctioned between 1st April 2016 and 31st March 2017.

4. Additional Deduction for Affordable Housing (Section 80EEA)

Eligibility: An additional deduction of up to ₹1.5 lakh is available under Section 80EEA for interest paid on loans sanctioned between 1st April 2019 and 31st March 2022. The stamp duty value of the property should not exceed ₹45 lakh. The individual should not own any other residential property on the date of sanction of the loan.

5. Deduction on Pre-Construction Interest

Eligibility: Interest paid during the construction period can be claimed in five equal installments starting from the year in which the construction is completed. The total deduction for the pre-construction period and the interest for the respective year should not exceed the applicable limits under Section 24(b).

6. Tax Benefits on Joint Home Loans

Eligibility: If a home loan is taken jointly, each co-borrower can claim a deduction for home loan interest up to ₹2 lakh each (for self-occupied property) and principal repayment up to ₹1.5 lakh each under Section 80C, provided they are also co-owners of the property.

Key Points to Remember

• Possession or Completion: Tax benefits on the home loan can only be claimed once the construction is complete, and the property is ready for possession.
• Loan Taken for Renovation: Tax benefits on interest payment are also available for loans taken for the renovation or reconstruction of property under Section 24(b).

FAQs about Maximizing Savings with Section 80EEA