Section 80EE Of The Income Tax Act: Tax Deduction On Home Loan Interest
First-time homebuyers can claim an 80EE deduction of up to Rs. 50,000 every financial year under Section 80EE of the 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 the 80EE deduction until the loan is repaid in full.
For detailed information on Section 80EE, keep reading!
Purpose of Section 80EE of the Income Tax Act
Section 80EE of the Income Tax Act allows individuals to get income tax benefits on the interest portion of residential property loans borrowed from any financial institution. The main purpose of this section is that enable individuals to claim a maximum deduction of Rs 50,000 during a financial year. Individuals can continue to claim the deduction until one has managed to fully repay the loan amount that he or she has borrowed.
Eligibility Criteria of Section 80EE
To qualify for an 80EE deduction, a taxpayer must meet the following eligibility criteria:
- Only individual taxpayers can benefit from the provisions of this section. Moreover, if one is purchasing a property with a co-owner/borrower and both are making contributions towards the loan, they can opt for tax benefit.
- The 80EE deduction is allowed for only first-time homebuyers. Meaning, that the individual must not own any other property at the time of applying for a housing loan.
- One must obtain a housing loan from a financial institution or HFC (Housing Finance Company).
- The maximum tax deduction that one can obtain under Section 80EE of the Income Tax Act is Rs. 50,000.
- The loan must have been approved between April 1 2016, and March 31 2017.
- To obtain an 80EE deduction, individuals must purchase a property with a stamp duty of not more than Rs. 50,00,000.
- The loan amount must be Rs. 35,00,000 or less.
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.
80EE Deduction is Not Applicable For
- Hindu Undivided Families (HUFs)
- Association of Persons
- Companies
- Sole Proprietorships
- Trusts, etc.
Section 80EE Features
The features of section 80EE of the income tax act include:
- The maximum that an individual can claim is Rs 50,000 per financial year. Moreover, it is above the Rs 2 Lakh limit stated under section 24 of the income tax act.
- Only individual taxpayers can claim the deduction under section 80EE on the purchase of property which has been done jointly or singly.
- This deduction is not applicable for Hindu Unified Family (HUF), companies, trusts, Association of Persons (AOP) and etc.
- Property can be both self-occupied and non-occupied.
Steps to Claim Tax Deduction under Section 80EE of the Income Tax Act
To know how much you can benefit from the tax deductions under IT Act, follow these steps:
Step 1: Calculate the total interest payable on your home loan during the current financial year.
Step 2: Upon calculating the interest component, claim the deduction of up to Rs. 2,00,000, which comes under Section 24 of the IT Act.
Step 3: 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 of the income tax act.
To get an idea of the principal and interest payable, you can refer to the home loan amortisation schedule.
Points to Remember Regarding Section 80EE of the Income Tax Act
Before claiming an 80EE deduction, remember the following points:
- This section was introduced in FY 2013-2014. Earlier, provisions of this section were available for two years, i.e., from FY 2013-2014 to FY 2014-2015. In addition, during that time, the maximum deduction limit was Rs. 1,00,000.
- Section 80EE of the income tax act was amended and was said to function from FY2016-2017 with a maximum deduction limit of Rs. 50,000 on the interest payable for a housing loan.
- There are no specifications as to whether the property should be self-occupied or not. So, borrowers staying in rented houses can also opt for a tax deduction under this section.
- Borrowers applying for a joint home loan can also enjoy tax deduction under this section if both the borrowers meet the conditions specified.
Also Read: Section 80GG Of The Income Tax Act: Income Tax Claim Deduction For Rent Paid
Total Tax Benefits on Home Loans Available Under the Income Tax Act
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 vs Section 24B: Differences
As per section 24B, individuals can claim a deduction of Rs 2 Lakh for self-occupied property. Moreover, the entire interest is deductible for let out property. Under section 80EE an additional deduction of Rs 50,000 is offered to individuals. However, one can only claim it after the Rs 2 Lakh is exhausted from section 24B. It is applicable for first time home buyers. The financial institution has to approve the loan from April 1, 2016, to March 31, 2017.
Also Read: 5 Tips To Consider Before Purchasing Your First Home
Final Word
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.
FAQs on Section 80EE of the Income Tax Act
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, that 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.
Ans: In order to claim this deduction an individual does not need to reside in the property. The individual can claim the deduction even if he lives in a rented house. One just needs to buy the property in his or her name in order to be eligible for this deduction under section 80EE of the income tax act.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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