Introduction:

The Indian Income Tax Act provides a tax deduction of up to Rs. 1.5 lakh per financial year to pay interest on home loan for purchase or construction of affordable house. 

This deduction, provided under Section 80EEA of the Income Tax Act, supplements the existing tax benefits outlined in Sections 80C and 24. Let’s delve into the regulations and conditions associated with it.

Section 80EEA:

Section 80EEA of the Income Tax Act 1961 allows eligible first time home buyers to claim additional tax exemptions up to Rs. 1.5 lakh in interest payments on their home loan. Individuals buying an affordable home for the first time can claim tax deduction benefits up to Rs. 1.5 lakhs, Rs. 2 lakhs is available for payment of annual interest on their mortgage loan under Section 24(b).

The deductions under section 80EEA are directly linked to the cost of residential property. Individuals are eligible to purchase their first home between April 1, 2019, and March 31, 2022, with a stamp duty value not exceeding Rs. 45 lakhs is available. Keep reading to know everything about Section 80EEA of the Income Tax Act.

Eligibility under Section 80EEA:

To claim a tax deduction on home loan interest payments under Section 80EEA, you must fulfill the following criteria:

• The deduction for interest payments under Section 80EEA is exclusively available to individuals. Therefore, if you are registered as a Hindu Undivided Family (HUF), partnership firm, or public/private company, you are ineligible to claim a deduction under this section for your home loan interest payments.
• The tax credit only applies to home loans obtained for the purchase of residential property. It is important to emphasize that this deduction does not apply to any other property and does not apply if the loan is used to cover the cost of repairs, construction or maintenance.
• Interest under this section is payable only if no deduction is required under section 80EE.
• The home loan must have been acquired for purchasing a residential property exclusively from a housing company or a financial institution.
• To qualify for the tax credit benefit under section 80EEA, you must not have any other property in your name at the time the home loan was sanctioned. In addition, you may be a first-time residential property buyer.

Tax deductions:

You can claim a tax deduction for the interest payments made towards your home loan for the following amount:

• Under Section 80EEA of the Income Tax Act, the deduction amount can be up to Rs. 1.5 lakhs. New homebuyers qualify for a total deduction of Rs. 3.5 lakhs (inclusive of both Section 24(B) and 80EEA) on the interest paid on home loans during a financial year. However, all requisite conditions must be met. For instance, the value of the residential property cannot exceed Rs. 45 lakhs.
• Stamp duty and registration fee may also qualify as tax deduction under Section 80C of the Income Tax Act, aggregating up to Rs. 1.5 lakh was used to pay the principal. This benefit is available irrespective of whether you can apply for a home loan or not. Again, this benefit applies only to the year incurred.
• The Income Tax Act allows interest deduction for both pre- and post-construction periods, with pre-construction interest deductible in five annual instalments, capped at Rs. 200,000 under Section 24(b).

Tax deduction under Section 24(b):

• Section 24(b) of the Income Tax Act permits you to deduct the interest paid on your home loan. You can claim  maximum tax deduction of Rs. 2 lakh from your gross income annually for a self-occupied residence, provided the construction or acquisition of the house is completed within five years.
• If you fulfill both  conditions mentioned in Section 24 of  Income Tax Act and Section 80EEA, you can claim benefits provided under both sections.
• First, use your deduction limit under Section 24, which is Rs. 2 lakhs and it is. Now, proceed to claim additional benefits under 80EEA. Therefore, this discount is different from Rs. 2 lakh limit permissible under the section 24.

Conditions for claiming the deduction under 80EEA:

• Taxpayers must opt ​​for the old tax regime to file income tax returns.
• The loan must be approved between April 1, 2019 and March 31, 2022.
• An individual taxpayer may not be able to claim a deduction under current section 80EE.
• The taxpayer must be a first-time home buyer and have no residential property as of the loan approval date.
• The property value of the house for stamp duty purposes should be Rs 45 lakh or less.
• The housing loan must be obtained from a financial institution or a housing finance company for the purpose of purchasing a residential property.
• There is no income ceiling limit for individuals to claim the deduction under this section.
• This section is only useful for first time homebuyers. This means that if a person has already used the benefit of any other category for other property, he/she cannot claim benefit under this category.

Documents Required:

To claim tax deduction benefits on your home loan interest payments, you need to submit an interest certificate when filing income taxes with the government. You can get this certificate from the lenders to whom you paid the interest on the home loan.

Tax benefits:

• If you take out a home loan jointly, each borrower can individually claim a deduction for home loan interest up to Rs. 2 lakh under Section 24(b) and a tax deduction for principal repayment up to Rs. 1.5 lakh under Section 80C. This effectively doubles the number of deductions available compared to a single-applicant home loan. However, it is essential that both applicants be co-owners of the property and contribute towards the EMIs.
• If you take out a second home loan to purchase another property, you can still enjoy the same tax benefits, but the total deductions are subject to the relevant restrictions outlined above. The government introduced additional incentives for real estate investment in the 2019 Union Budget. 
• Previously, only one property could be considered self-occupied, while a second house was deemed to be let out, resulting in notional rent being calculated and taxed as income. However, a second home can now also be treated as a self-occupied property.

Final Word:

In summary, the 80EEA deduction of the Income Tax Act represents a commendable initiative by the government to offer supplementary tax advantages to individuals acquiring or constructing an affordable house. This measure is poised to stimulate increased investment in the housing sector, thereby aiding in the realization of the government’s ‘Housing for All’ objective.