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

80eea deduction

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Last updated on 17th January 2024

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

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.

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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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.

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.

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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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.

FAQs about Maximizing Savings with Section 80EEA

Yes, if you and the co-applicant are co-owners of the property and both are paying the EMIs.

Yes, till the repayment of the loan, subject to the conditions of the section.

Deduction under Section 80EEA is available until the repayment of the home loan, provided the other conditions of the section are met.

No, Section 80EEA only allows for the deduction of interest on the home loan, not the principal repayment.

No, you cannot claim deduction under both Section 80EE and 80EEA simultaneously. If you are eligible for Section 80EEA, then 80EE cannot be claimed.

Yes, you can avail deductions under both Section 24(b) for interest on a home loan and Section 80EEA simultaneously.

Yes, joint owners can claim the deduction under Section 80EEA separately, provided both are contributing to the home loan repayment and are co-borrowers of the loan.

No, Section 80EEA does not provide for the deduction of principal repayment. It only allows for the deduction of interest on a home loan.

No, Section 80EEA is applicable only to taxpayers who do not own any other residential property on the date of sanction of the loan, hence it cannot be claimed for a second property.

Published on 27th November 2023