Introduction:

Section 80EE of the Taxation Act provides a useful scheme aimed at reducing the burden on taxpayers through home loans. This section facilitates the deduction of mortgage interest payments, thereby providing relief to eligible individuals.

The section was first introduced in the Union Budget of FY 2013–2014 in support of tax relief for first-time home buyers. If individuals can claim this deduction, they can show the amount of interest paid in a specified section of the income tax return. The most important document required for this transaction is the lender’s statement detailing the interest and principal payments.

Section 80EE:

Section 80EE enables individuals to avail income tax benefits on the interest component of their residential property loans obtained from any financial institution. Under this provision, taxpayers can seek a deduction of up to Rs 50,000 per financial year. This deduction remains applicable until the loan is entirely repaid.

Taxpayers are eligible for the Section 80EE benefit when the home loan was discharged between April 1, 2016 and March 31, 2017.In the Budget of 2023, it was proposed that while computing capital gains from the sale of a residential property, the cost of acquisition should exclude any home loan interest claimed as an income tax deduction by the seller during the holding period.

Section 80EE Features:

• Here are some of the highlights of Section 80EE of the Income Tax Act.
• Under this section, you can get a tax deduction of up to ₹50,000 per financial year on the interest component of your home loan. This allowance is in addition to the maximum deduction limit of ₹2 lakh available under Section 24(b) for owners of self-occupied property.
• Unlike Section 24(b), which requires the taxpayer to occupy the property for which they are claiming a tax deduction on their home loan payments, Section 80EE has no such precondition. Whether you reside in the property for which you have taken a home loan is immaterial under this section.
• This provision ensures the affordability of housing loans  by allowing taxpayers to claim a deduction for each fiscal year for the entire term of the loan.

Eligibility for Section 80EE Deduction:

• To qualify for the 80EE deduction, the taxpayer must meet the following criteria.
• Only individuals are eligible to claim tax deduction under Section 80EE. This provision does not apply to Hindu Undivided Families (HUFs), Associations of Owners (AOPs), Bodies of Private Individuals (BOIs), companies or trusts.
• The home loan borrower must obtain a declaration from the lender, clearly indicating the breakdown between the principal amount and the interest.
• The loan must be sanctioned by a legally recognized lender, such as a housing finance company, bank, or non-bank financial institution (NBFC).
• The home loan borrower must be purchasing a home for the first time.

Conditions for  Claiming Section 80EE Deduction:

• While Section 80EE was introduced with the intention of enhancing housing affordability in the country, it is accompanied by a set of terms and conditions outlined below: 
• To clarify, a taxpayer seeking tax deductions under Section80EE of the I-T Act must be a first-time homebuyer, meaning they cannot own any other property at the time of loan sanction.
• The approved loan cannot exceed ₹35 lakh.
• A taxpayer eligible for Section 80EE deduction can also avail tax benefits under other sections, such as Section 24 and Section 80C of the I-T Act.
• The application of section 80EE of the Income Tax Act is determined on a per person basis rather than on a per property basis. This means that if two people who both contribute to the payment of a home loan jointly purchase a property, each of them can claim a deduction under this section
• The value of the property cannot surpass ₹50 lakh.
• It is applicable only to home loans approved between April 1st, 2016, and March 31st, 2017.

Tax Benefit under Section 80EE:

• Under this section, you can claim a deduction of ₹50,000 per financial year till you repay your home loan in full (only applicable to home loans sanctioned between April 1, 2016 and March 31, 2017). Apart from that, you can also avail tax deductions under Sections 80C and 24B to finance your home loan.

Section 80EE and Section 24:

• Under Section 24B of the I-T Act, an individual can claim a deduction of ₹2 lakh from the interest component of a home loan, which applies only to self-occupied property.
• Under Section 80EE, one can claim additional tax deduction up to ₹50,000. However, before claiming deduction under section 80EE it is necessary to first, if applicable, apply the tax limitation under section 24B. If both are eligible, a maximum tax exemption of ₹2.5 lakh can be claimed. Please note that section80EE only applies to first-time home buyers in respect of loans approved between 1 April 2016 and 31 March 2017 only.

Things to Remember:

• Section80EE was introduced in the financial year 2013-14 and was applicable for only two years: FY 2013-14 and FY 2014-15. The deduction allowed during this period was limited to a maximum of Rs 1 lakh in total and was available for only two financial years.
• The section does not specify residency requirements for claiming this benefit. Therefore, it can be concluded that both resident and non-resident Indians are eligible to claim this deduction.
• Also, individuals can claim a deduction for purchasing a home jointly or individually. If a person owns the home jointly with a spouse and they both pay cash for the loan, both individuals can claim this deduction.
• The section also does not specify whether the house should be self-occupied to claim the deduction. Therefore, borrowers living in rented houses can also claim this deduction.

Final Word:

Section 80EE was reintroduced in Budget 2016-2017 to provide additional relief to home loan borrowers, who can claim cancellation under section 80C, section 24B and section 80EE for repayment of similar home loans. Today section 80EEA has been replaced to extend benefits to affordable housing. However, first-time homebuyers, whose loan was approved between April 1, 2016, and March 31, 2017, can continue the 80EE deduction for the entire term of their loan.