Section 80EEA Of The Income Tax Act: Terms And Conditions, Eligibility And Deductions
Are you planning to purchase a property with the help of a home loan?
If yes, then Section 80EEA of Income Tax Act can help you get a tax deduction of Rs. 1.5 lakh over the home loan interest component. However, you have to purchase a residential house property worth not more than Rs. 45 lakh to claim 80EEA deduction.
There are a few other considerations under this section that first-time homebuyers must know about. Know all about them here.
Also read: Section 80CCD of Income Tax Act
What is Section 80EEA of the Income Tax Act?
The Government of India launched the Pradhan Mantri Awas Yojana (PMAY) in 2014 with the objective of ‘Housing for All’. This was one of the many initiatives to encourage the Indian population towards purchasing their own property. To back this great initiative, Section 80EEA was introduced in 2019. Through this section, the government plans to extend its support for home loan applicants.
Under this section, first-time homebuyers can opt for a tax deduction of up to Rs. 1.5 lakh if they purchase an affordable property. The deduction amount is above the basic deduction in Section 24(b), which offers a deduction on interest payments for up to Rs. 2 lakh.
As a result, taxpayers can benefit from a tax deduction of around Rs. 3.5 lakh on interest payable on a home loan in a particular financial year.
What are the Conditions to Claim Deduction under Section 80EEA?
Taxpayers must be well-versed with the particular specifications that decide one’s eligibility for obtaining 80EEA deduction. Find them below:
- The individual must have taken a home loan from a financial institution or an HFC (Housing Finance Company) to purchase a residential property.
- The stamp duty for the said property must not be more than Rs. 45 lakh.
- One cannot claim a deduction under Section 80EE if they decide to obtain an 80EEA deduction.
- The individual must be a first-time homebuyer. He/she must not be the owner of any other residential property on the date of loan sanction.
For example,
Suppose Mr Sharma purchased a property in 2019 with the help of a home loan. The stamp duty value of the property is Rs. 50,00,000. He pays a total interest of Rs. 2,60,000 during the same year. In this case, will he be eligible to claim a tax deduction under Section 80EEA?
In this example, the stamp duty of a property is more than Rs. 45 lakh. So, Mr Ravi will not be able to claim a tax deduction. However, he can claim an interest deduction of up to Rs. 2,00,000 under Section 24 of Income Tax Act.
What are the Conditions Regarding the Property’s Carpet Area?
The following considerations regarding a property’s carpet area are mentioned in the Finance Bill. Find them below:
- The carpet area of a house should not be more than 645 square feet (60 square metres). This is applicable in metropolitan cities, such as Bangalore, Delhi NCR, Chennai, Kolata, Mumbai and Hyderabad.
- The carpet area must not be more than 968 square feet (90 square metres) in other towns or cities.
In addition, the factors mentioned above will be considered only on RERA approved projects on or after September 1 2019.
What are the Eligibility Criteria to Claim Deduction under Section 80EEA?
There are a few eligibility parameters regarding the 80EEA deduction. Find them below:
- Tax deduction on the interest component under Section 80EEA of the Income Tax Act is applicable only to Individual homebuyers. One can purchase the property jointly or singly.
- Tax benefits are not available for people belonging to Hindu Undivided Families (HUFs), companies, partnerships or sole proprietorships.
- The taxpayer doesn’t need to reside on the said property. The borrower can also stay in a rented property to claim an 80EEA deduction.
Also read: Section 80DDB of Income Tax Act
Final Word
Through this section, the government extends its support since FY2019 to taxpayers availing of a home loan for the first time. On account of the provisions of Section 80EEA of the Income Tax Act, more and more individuals will be able to fulfil their dream of owning a house conveniently.
Frequently Asked Questions
Ans: Those individuals who do not own any property when applying for a housing loan are first-time homebuyers. Note that adult workers can be considered as separate households, even if their parents own a house.
Ans: The provisions of the section do not mention anything about non-resident Indians. So, even NRIs can enjoy a tax deduction under this section. The only condition here is that the property should be based in India and must fall within the prescribed stamp duty amount.
Ans: Yes, in this case, you as well as the co-borrower will be eligible to claim a tax deduction of up to Rs. 1.5 lakh under this section. However, both of you must consider the eligibility parameters and meet the required conditions to avail of this benefit.
Ans: As per Section 80EEA provisions, only a residential property is covered under this section. If you are purchasing a commercial property, then you won’t be able to claim a tax deduction under Section 80EEA of the Income Tax Act.
Ans: Since the section was introduced in 2019, loans taken before this period are not eligible for a tax deduction under this section. The loan taken for the purchase of an affordable house must be disbursed between FY19 – FY22.
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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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