First-time homebuyers can claim an 80EE deduction of up to Rs. 50,000 every financial year under Section 80EE of Income Tax Act. This deduction is allowed on the interest component of a home loan availed upon residential property. One can continue to benefit from 80EE deduction until the loan is repaid in full.
Read on to know more about this section.
To qualify for an 80EE deduction, a taxpayer must meet the following eligibility criteria:
80EE deduction is not applicable for:
Individuals must note that this deduction of up to Rs. 50,000 is on top of the deduction in Section 24 of the Income Tax Act. As per Section 24, one can obtain a tax deduction of up to Rs. 2,00,000 on the interest component of a home loan.
So, overall, you can obtain a tax deduction of Rs. 2,50,000 under both these sections after meeting the prevailing conditions.
Also read: Section 80GG of Income Tax
To know how much you can benefit from the tax deductions under IT Act, follow these steps:
Calculate the total interest payable on your home loan during the current financial year.
Upon calculating the interest component, claim the deduction of up to Rs. 2,00,000, which comes under Section 24 of the IT Act.
After that, you can claim the remaining amount of up to Rs. 50,000 under Section 80EE.
Let us understand this with the help of an example,
Suppose you obtain a home loan amounting to Rs. 35,00,000 for a tenor of 15 years. The rate of interest on that loan is 7% p.a. Here, for the first year, you will have to repay Rs. 3,77,508. Out of the total repayment, Rs. 2,40,665 would be your interest paid. Now, under the provisions of Section 24, you can claim a deduction of Rs. 2,00,000 for this amount. The remaining Rs. 40,665 can be claimed as a tax deduction under Section 80EE.
To get an idea of the principal and interest payable, you can refer to the home loan amortisation schedule.
Before claiming a deduction under this section, remember the following points:
Also read: Section 80CCD of Income Tax
Here is a tabular representation of tax benefits for the interest component available under different sections of the IT Act for home loan borrowers:
|IT Act Section||Max. Deduction Amount||Conditions|
|Section 24||Rs. 2,00,000||Loans sanctioned before April 1 1999|
|Section 80EE||Rs. 50,000||Loans approved between April 1 2016 and March 31 2017|
|Section 80EEA||Rs. 1,50,000||The taxpayer must not be eligible for tax deduction under Section 80EE|
Section 80EE of the Income Tax Act entails provisions on home loans’ interest component. If you are a taxpayer repaying a home loan on a residential property, make sure to go through the above-mentioned sections and enjoy reduced tax outgo.
Ans: In this case, you are not the co-owner of the property. Section 80EE of the Income Tax Act specifies that the co-borrower of a home loan should also be the co-owner of a property. However, you can ask your wife to execute a gift deed or sale deed for you to include as a co-owner of the property.
Ans: Section 80EE of the Income Tax Act allows a tax deduction on the interest component only for first-time homebuyers. So, if you already own a property in the country, then you are not eligible to obtain a tax deduction under this section.
Ans: Section 80EE of the Income Tax Act allows tax deductions of up to Rs. 50,000 on a home loan’s interest payout per financial year. Meaning, if you have borrowed a home loan between April 1, 2016 and March 31 2017, then you can obtain a tax deduction of Rs. 50,000 every financial year until you repay the loan.
Ans: Tax deduction under Section 80EE is only applicable to individual taxpayers in India. On the other hand, Hindu Undivided Families (HUFs) can also claim a tax deduction under Section 24. Moreover, Section 80EE is allowed for only first-time homebuyers, whereas there are no such restrictions in Section 24.
Ans: Yes, as per the Income Tax Laws, you must produce the possession letter to claim tax deductions. You can obtain this certificate by visiting your nearby Anchal Adhikari office or the RTPS office. Note that different states entail different processes for obtaining a possession letter.
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