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Section 80EE: Deduction for Interest on Home loan

by | Jun 15, 2024 | Income Tax | 0 comments

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Important Keyword: Chapter VI-A, Interest, Section 80EE.

Section 80EE: Deduction for Interest on Home loan

Buying a home for the first time can be a challenging process. It begins with finding the right house that fits your needs and desires and ends with the more complex steps of applying for a home loan. To help ease this financial burden, Section 80EE of the Income Tax Act was introduced. This section offers a special benefit for first-time home buyers, allowing them to claim an additional tax deduction on the interest paid on their home loans.

This extra deduction is available up to INR 50,000 for loans taken between April 1, 2016, and March 31, 2017. However, to qualify for this benefit, certain conditions must be met. This provision aims to provide some financial relief to new homeowners by reducing the overall cost of borrowing.

What is Section 80EE?

Section 80EE of the Income Tax Act provides a tax benefit to individuals on the interest paid on home loans for purchasing a property. This section aims to offer some financial relief to first-time homebuyers by allowing them to claim a deduction on their home loan interest.

What are the Eligibility Criteria?

  • First-Time Homeowners Only: This deduction is available only to individuals buying their first home. If two individuals jointly own the home and are paying the loan, both can claim the deduction.
  • Exclusions: Hindu Undivided Families (HUFs), companies, and partnership firms cannot claim this deduction. Additionally, the deduction is available only on the interest paid, not on the principal repayment.

Conditions to Claim the 80EE Deduction

  1. First-Time Home Buyer: The individual must be purchasing their first residential property.
  2. Value of the House: The cost of the house should not exceed INR 50 lakh.
  3. Loan Sanction Period: The loan must be sanctioned between April 1, 2016, and March 31, 2017.
  4. Loan Source: The loan should be from a financial institution or a housing finance company.
  5. Loan Amount: The loan amount should not exceed INR 35 lakh.
  6. Ownership of Other Property: The taxpayer should not own any other residential property on the date of the loan sanction.
  7. Property Type: The deduction is applicable only for residential properties, not commercial ones.

Deduction Limit for Section 80EE

  • Initial Introduction: Section 80EE was first introduced in the Budget 2014 for FY 2013-14 and FY 2014-15 with a maximum deduction limit of INR 1 lakh.
  • Reintroduction: It was reintroduced in the Budget 2017, effective from FY 2016-17 (AY 2017-18), allowing a deduction of up to INR 50,000 per year until the loan is fully repaid.
  • Cumulative Benefit: This INR 50,000 deduction is in addition to the INR 2,00,000 deduction allowed under Section 24 for home loan interest. Thus, if eligible, a taxpayer can claim a total deduction of INR 2,50,000 on home loan interest in a financial year.

Section 80EE vs 80EEA

The below table states the major difference between 80EE & 80EEA deduction:

PARAMETERSECTION 80EESECTION 80EEA
EligibilityOnly Individual TaxpayersOnly Individual Taxpayers
Deduction LimitINR 50,000INR 1,50,000
Applicability of Section 24Can be claimed up to INR 2,50,000 (INR 2lakh + INR 50,000)Can be claimed up to INR 3,50,000
(INR 2lakh + INR 150,000)
Date of Loan SanctionedTaxpayers get the deduction if their loans are sanctioned from 1st April 2016 to 31st March 2017Taxpayers get the deduction if their loans are sanctioned from 1st April 2019 to 31st March 2022
Stamp DutyThe stamp duty value of the house should not exceed INR 50 LakhThe stamp duty value of the house should not exceed INR 45 Lakh
Loan AmountThe amount of the loan should not exceed INR 35 LakhThere is no such limit on loan amount
ConditionThe taxpayer has to be a first-time home-buyerThe taxpayer has to be a first-time home buyer and shouldn’t have availed of any deductions under 80EE

Differences between Section 80EE and Section 24(b)

  • Section 24(b):
    • Deduction Limit: Allows a deduction of up to INR 2 lakh for interest paid on a home loan for a self-occupied property.
    • Let-Out Property: For let-out (rented) properties, the entire interest amount paid on the home loan is deductible.
    • Scope: Applies to both first-time and repeat homebuyers.
    • Eligibility: No restrictions on the value of the property or the loan amount.
  • Section 80EE:
    • Additional Deduction: Offers an additional deduction of up to INR 50,000 over and above the limit under Section 24(b).
    • First-Time Homebuyers: Exclusively available for first-time homebuyers.
    • Conditions:
      • The value of the residential property should not exceed INR 50 lakh.
      • The home loan should be sanctioned between April 1, 2016, and March 31, 2017.
      • The loan amount should not exceed INR 35 lakh.
      • The taxpayer should not own any other residential property at the time of loan sanction.
    • Residential Property Only: The deduction is only for residential properties and not for commercial properties.

ITR Forms Applicable for Section 80EE

Taxpayers who meet the conditions for Section 80EE can claim the deduction while filing their Income Tax Return (ITR). The deduction can be claimed in any of the following ITR forms, depending on the individual’s income sources:

  • ITR 1: For individuals with income from salary, one house property, and other sources (excluding lottery winnings and income from racehorses).
  • ITR 2: For individuals and HUFs not having income from business or profession.
  • ITR 3: For individuals and HUFs having income from business or profession.
  • ITR 4: For individuals, HUFs, and firms (other than LLP) having presumptive income from business or profession.

Supporting Documents

To claim the deduction under Section 80EE, taxpayers should have:

  • Home Loan Repayment Certificate: A statement from the lender detailing the interest paid during the financial year.
  • Interest Certificate: A certificate from the lender showing the interest component of the home loan repayment.

Read More: Section 80GG: Deduction for Rent Paid

Web Stories: Section 80GG: Deduction for Rent Paid

Official Income Tax Return filing website: https://incometaxindia.gov.in/

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