fbpx
+91-8512-022-044 help@finodha.in
Section 80EEA: Deduction on Home Loan Interest

Section 80EEA: Deduction on Home Loan Interest

Important keyword: Income from House Property, Income Source, Section 80EEA.

Affordable Housing and Section 80EEA

In Budget 2019, Finance Minister Nirmala Sitharaman outlined a vision for “Affordable Housing,” leading to the introduction of Section 80EEA. This section provides additional tax benefits on home loan interest for first-time home buyers starting from FY 2019-20.

Who Can Claim a Deduction Under Section 80EEA?

The deduction under Section 80EEA is available only to individuals who opt for the old tax regime. Both resident and non-resident individuals can claim this deduction. To be eligible, you must meet the following criteria:

  • The stamp duty value of the residential house must be up to INR 45 lakh.
  • The loan must be taken from a financial institution or a housing finance company.
  • The loan must be sanctioned between April 1, 2019, and March 31, 2022.
  • The assessee should not claim any deduction under Section 80EE.
  • The assessee should not own any residential house property on the date of loan sanction, making them a first-time home buyer.

The exemption limit under this section is INR 1,50,000. Additionally, you can claim a deduction under Section 24 along with 80EEA, providing a total benefit of up to INR 3,50,000 in a financial year.

Joint Ownership

If a house is owned jointly and all co-owners are making loan installment payments, each can claim this deduction individually, provided all conditions are met.

Conditions for Carpet Area of the House Property

According to the memorandum to the finance bill:

  • In metro cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai), the carpet area should not exceed 60 square meters (645 sq ft).
  • In other cities or towns, the carpet area should not exceed 90 square meters (968 sq ft).

This definition applies to affordable real estate projects approved on or after September 1, 2019.

Difference Between Section 80EEA and Section 24

The deduction under Section 80EEA is available over and above the deduction under Section 24. This means a first-time home buyer can claim deductions under both sections if all conditions are met. Here’s how they compare:

  • Section 24: Allows a deduction of up to INR 2 lakh on home loan interest.
  • Section 80EEA: Allows an additional deduction of up to INR 1.5 lakh on home loan interest for first-time home buyers.

Example

Mr. Raj, a salaried individual, purchased his first home for INR 40 lakh. He took a home loan from a housing finance company, sanctioned on June 15, 2019. He pays an annual interest of INR 2.5 lakh on the loan.

  1. Under Section 24: He can claim a deduction of up to INR 2 lakh.
  2. Under Section 80EEA: He can claim an additional deduction of INR 50,000 (since the total interest paid exceeds INR 2 lakh).

Thus, Mr. Raj can claim a total deduction of INR 2.5 lakh on his home loan interest.

Sr. No.ParameterUnder Section 80EEAUnder Section 24
1.PossessionPossession of the property is not required to claim deductions u/s 80EEAPossession of the property is required to claim deductions u/s 24
2.Deduction LimitINR 1,50,000INR 2,00,000
4.Source of LoanA deduction can be claimed only if the loan is taken from banks and financial institutionsA deduction can be claimed even if the loan is taken from friends and family
5.Value of the PropertyThe stamp duty value of the house should not be more than INR 45 LakhThere is no such specification
6.Category of BuyersThis deduction is available only to first-time home buyersThis deduction is available to all types of home buyers
7.Loan PeriodDeductions are available only if the loan is taken between April 1, 2019, and March 31, 2022Deductions are available only if the loan is taken after April 1, 1999

How is the Deduction Calculated Under Section 80EEA?

The total deduction available under Section 80EEA is INR 1,50,000 or the interest payable amount, whichever is lower.

To illustrate this, let’s consider two examples:

Scenario 1:

Mr. Murthy took a home loan in FY 2019-20 for a house with a stamp duty value of INR 40 lakh. He paid INR 4,00,000 in interest for the year. He does not own any other residential house on the date of the loan sanction.

Solution:

  • Under Section 24: Mr. Murthy can claim a deduction of INR 2,00,000 for home loan interest.
  • Under Section 80EEA: Mr. Murthy can claim an additional deduction of INR 1,50,000 since the stamp value of the house is less than INR 45 lakh.

So, the total deduction Mr. Murthy can claim under both sections is INR 3,50,000.

Scenario 2:

Mr. and Mrs. Mehta jointly purchased a house worth INR 45 lakh in FY 19-20. Mr. Mehta individually took a home loan with an annual interest payment of INR 3,00,000.

Solution:

  • Mr. Mehta can claim a deduction under Section 24 for INR 2,00,000.
  • Under Section 80EEA, Mr. Mehta can claim an additional deduction of INR 1,00,000 (since the interest payable exceeds the limit).

Mrs. Mehta cannot claim a deduction under Section 80EEA as she is not a co-borrower. Thus, Mr. Mehta can claim a total deduction of INR 3,00,000.

ITR Form Applicable for Section 80EEA

Taxpayers can claim a deduction under Section 80EEA when filing their Income Tax Returns (ITR) if all conditions are met. The deduction can be claimed in any of the following ITR forms, depending on the individual’s income sources:

  • ITR 1
  • ITR 2
  • ITR 3
  • ITR 4

Supporting Documents

To claim a deduction under Section 80EEA, the following documents are required:

  • Form 16: Issued by the employer showing the details of salary and TDS.
  • Home Loan Certificate: Provided by the bank showing the interest and principal repayment.
  • Bank Account Statement: Showing the EMIs paid.
  • Home Loan Sanction Letter: Issued by the bank at the time of loan sanction.

Note: Taxpayers can claim the deduction under this section if the interest is payable, even if the payment has not been made. It is essential to have supporting documents, and the deduction can be claimed even if it is not reflected in Form 16, provided the documents are available.

Read more: Section 80EEB: Deduction for Interest paid on E-Vehicle loan

Web Stories: Section 80EEB: Deduction for Interest paid on E-Vehicle loan

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

ITR Documents Checklist: House Property Income

ITR Documents Checklist: House Property Income

Important Keyword: Form 16A, Income from House Property, Income Source.

Document Checklist for Income from House Property

House property refers to any land or building, including the land attached to the building such as a courtyard, parking space, or compound. A taxpayer must report income earned from such property when filing their Income Tax Return (ITR). To accurately calculate and report this income, it is essential to maintain a checklist of supporting documents. The types of properties that fall under this category include:

  • Residential Houses/Flats
  • Shops
  • Office Space
  • Factory Sheds
  • Farmhouses
  • Godowns
  • Cinema Buildings
  • Workshop Buildings
  • Hotel Buildings

You can file ITR-1 if you have earned income from one property. However, you need to file ITR-2 if you own more than one property. You can file ITR online using ITR Utilities or through registered e-Return Intermediary (ERI)

House Property Income Documents Checklist

When filing your Income Tax Return (ITR) for income earned from house property, it is crucial to have all necessary documents ready. Here is a checklist of essential documents:

PAN

The Permanent Account Number (PAN) is an alphanumeric ID issued by the Income Tax Department (ITD). It is used to link all transactions of a taxpayer with their income. PAN is a vital document for filing ITR.

Aadhaar

Aadhaar is a 12-digit unique identification number issued by the Unique Identification Authority of India (UIDAI). It is mandatory for resident individuals to provide their Aadhaar details when filing ITR.

Utility Bill

Taxpayers must disclose the address of all properties they own while filing ITR. Utility bills, which include the property address, serve as proof of address. Examples include:

  • Electricity Bill
  • Water Bill
  • Gas Bill

Rent Agreement

Rental income is considered taxable income. The rent agreement between the property owner and the tenant serves as proof of the rental income earned during the financial year. Ensure to have a copy of:

  • The Rent Agreement
  • Rent Receipts (if applicable)

Additional Important Documents

Property Ownership Documents

Proof of ownership is essential for all properties. This includes:

  • Sale Deed
  • Title Deed
  • Purchase Agreement
  • Property Tax Receipts

Municipal Taxes Paid

Documents showing the payment of municipal taxes, which are deductible from rental income, include:

  • Property Tax Receipts
  • Municipal Tax Payment Receipts

Interest on Home Loan

If you have taken a home loan for the property, the interest paid on the loan is deductible. Required documents include:

  • Home Loan Statement
  • Interest Certificate from the Bank

Maintenance and Repair Bills

Expenses incurred for the maintenance and repair of the property are also deductible. Keep the following:

  • Maintenance Bills
  • Repair Receipts

Insurance Premium Receipts

Insurance premiums paid for the property are deductible. Ensure you have:

  • Insurance Premium Receipts

Filing ITR

By ensuring you have all these documents organized and accessible, you can accurately report your income from house property and claim all eligible deductions when filing your ITR. This thorough preparation helps in smooth and error-free tax filing.

Form 16A 

Form 16A will be provided if TDS is deducted on your rental income. While filing your ITR you can claim this TDS using Form 16A.

House Property Income Document - Form 16A

Home Loan Repayment Certificate/Interest Certificate from the Bank

This certificate provides details of the capital amount, repayment amount, interest charged, and co-ownership details. It serves as proof for claiming deductions on both interest repayment and principal repayment, reducing your net taxable house property income.

Municipal Tax Receipts

Municipal tax is paid on properties. Taxes paid on let-out properties can reduce your net taxable rental income. Therefore, municipal tax receipts are required while calculating the income from house property.

Read More: ITR Documents: Income from other sources

Web Stories: ITR Documents : Income from other sources

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

ITR Documents: Income from other sources

ITR Documents: Income from other sources

Important Keyword: Form 26AS, IFOS, Income Source, Income Tax Filing.

ITR Documents: Income from Other Sources (IFOS)

Income from Other Sources (IFOS) includes any income that is not taxed under the following heads:

  1. Salary Income
  2. Business and Profession Income
  3. Capital Gains Income
  4. House Property Income

Types of Income Included in IFOS

  • Bank Interest: Interest earned from savings accounts, fixed deposits, and recurring deposits.
  • Investment Interest: Interest from bonds, debentures, and other investments.
  • Dividend Income: Dividends received from shares or mutual funds.
  • Family Pension: Pension received by family members after the death of the pensioner.
  • Gifts: Monetary gifts or valuable assets received, subject to certain conditions.
  • Royalties: Income earned from intellectual property like patents, copyrights, or trademarks.

These various sources of income fall under IFOS and are subject to specific tax rules and regulations.

Document Checklist for Income from Other Sources (IFOS)

1. PAN (Permanent Account Number)
  • Issued by the Income Tax Department (ITD), PAN is an alphanumeric ID essential for taxpayers.
  • PAN links all transactions of a person to their income and is crucial for filing Income Tax Returns (ITR).
2. Aadhaar
  • Aadhaar is a 12-digit unique identification number issued by the Unique Identification Authority of India (UIDAI).
  • It is mandatory for resident individuals to provide their Aadhaar details when filing ITR.
3. Form 26AS
  • Form 26AS is a consolidated Tax Credit Statement containing the following details:
    • Details of TDS (Tax Deducted at Source): Information on TDS from the taxpayer’s income.
    • Details of TCS (Tax Collected at Source): Information on TCS from the taxpayer’s payments.
    • Advance Tax and Self-Assessment Tax: Payments made by taxpayers.
    • Refunds: Details of any refunds received during the year.
    • High-Value Transactions: Information on significant transactions, such as investments in shares and mutual funds.

Proofs for Investment Deductions

When filing your Income Tax Return (ITR), you can claim deductions for certain investments and expenses. To do this, you need to provide proofs of these investments, such as donation receipts, fixed deposit statements, and other relevant documents. These investment proofs are crucial as they help reduce your overall taxable income under Chapter VI-A deductions.

Importance of Bank Statements

A bank statement that includes Income from Other Sources (IFOS) transactions is essential for preparing your ITR. By examining your bank statements, you can determine the total income earned from various sources like interest, dividends, gifts, and more. This information is vital for accurately reporting your income and claiming the appropriate deductions.

Read More: Form 26QD: TDS on Contractual and Professional Payments

Web Stories: Form 26QD: TDS on Contractual and Professional Payments

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

Income Tax for NRI and Foreign Income

Income Tax for NRI and Foreign Income

Important Keyword: Income Heads, Income Source, NRI Taxpayers, Resident Status.

Definition of NRI

Determining the tax liability of an NRI hinges upon their residential status for the year. It’s crucial to ascertain the residential status of an individual before delving into their tax obligations. Here are the criteria for determining residential status:

You’re considered an Indian resident for a particular financial year if:

  1. You’ve spent at least 182 days (6 months) in India during the financial year, or
  2. You’ve resided in India for at least 60 days (2 months) during the previous year and have lived for at least 365 days (a year) during the last four years.

However, the first condition alone applies if you’re an Indian citizen working abroad or a member of a crew working on an Indian ship. In such cases, if you spend at least 182 days in India during the financial year, you’re deemed a resident Indian.

A person is considered to be of Indian origin if they, or either of their parents or any of their grandparents, were born in undivided India.

If you don’t meet any of the above conditions, then you’re categorized as an NRI.

Determining the residential status plays a pivotal role in assessing the taxability of income.

If your status for the previous year is “Resident,” your global income will be taxable in India. However, if your status is “NRI,” only the income earned or accrued in India will be taxable in India. Some examples of incomes earned or accrued in India include salary received in India, professional fees received in India, rental income from property in India, capital gains from the transfer of assets situated in India, and interest income on fixed deposits or savings accounts in India.

All these incomes are taxable in India for an NRI. Any income earned by an NRI outside India, such as salary income abroad or interest earned on NRE accounts or deposits abroad, will not be taxable in India.

It’s important to note that interest income on the NRE account is completely tax-free, while interest earned on the NRO account is subject to TDS at the rate of 30.9%.

Taxable Incomes for NRI Include

Salary earned or received in India by an NRI, or on their behalf, is taxable in India. This includes income deposited to an Indian bank account. For instance, if an Indian company employee, like Ravish, is deputed to work in Dubai but continues to receive their salary in India, that income is taxable in India.

However, salaries received by diplomats and ambassadors are completely exempt from taxation.

Income from house property situated in India is taxable for NRIs. The calculation follows the same rules as for resident Indians, including deductions like the standard 30% deduction and deductions for interest and principal repayment on home loans. Rental income received by NRIs is subject to a 30.9% TDS by the tenant.

Income from businesses set up or controlled from India is taxable for NRIs, as is income from other sources like interest on deposits or savings bank accounts in India. Interest earned on NRE and FCNR accounts is tax-exempt for NRIs, while interest earned on NRO accounts is subject to a 30.9% TDS.

Capital gains from the transfer of assets situated in India, including shares and securities, are taxable in India for NRIs. However, exemptions under sections 54 and 54EC are available for capital gains arising from the sale of residential property.

Deductions and Exemptions for NRI

Here is a summary of deductions and exemptions which are / not allowable for NRI:

Deductions/ ExemptionsAllowableNot allowable
Section 80CLife Insurance Premium PaymentInvestment in PPF
Children’s Tuition Fee PaymentInvestment in NSCs
Principal Repayment on Loan for purchase of House PropertyPost Office 5 year Deposit Scheme
Investment in ELSSSenior Citizen Saving Scheme
Investment in Unit Link Insurance Plan 
Section 80CCGInvestment under RGESS
Section 80DPremium Paid for Health Insurance
Section 80DDExpenditure on Maintenance including medical treatment of a handicap dependent
Section 80DDBExpenditure towards medical treatment of a differently abled dependent
80EInterest paid on education loan
80GDonations for charity (social) causes
80TTAInterest income from savings bank account
80UDeduction available to differently abled individuals
80UDeduction available to differently abled individuals
Deductions from House Property IncomeStandard deduction
Property taxes paid
Interest paid on home loan
Exemption on sale of Long term propertySection 54: On sale of long term house property
Section 54F: On sale of any long term asset other than house property
Section 54EC: On sale of any property and reinvestment in bonds of National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC)

How to Avoid Double Taxation?

To avoid double taxation, NRIs can benefit from the Double Taxation Avoidance Agreement (DTAA), an agreement between India and foreign countries. The DTAA provides relief in two ways:

  1. Exemption from double taxation: If the agreement allows exemption, the NRI is taxed in only one country, and no taxes are payable in the other. For instance, if Manali, a non-resident Indian, earns interest income from fixed deposits in India while working as a Certified Accountant in the US, and India and the USA have an agreement providing exemption, her interest income is taxed only in India, exempt from US taxation.
  2. Tax Credit (Relief): If the agreement provides relief, incomes are taxed in both countries, but the NRI can claim relief in their country of residence. For example, if Paritosh, an NRI content writer in Australia, earns rental income from his flat in India, and India and Australia have an agreement providing relief via tax credit, his rental income is taxed in both countries. However, Paritosh can claim a tax credit in Australia for the taxes paid in India.

Changes in Budget 2020: The budget introduced changes affecting NRIs:

  1. Criteria for Determining Residential Status: The condition of 182 days to determine residential status was reduced to 120 days in a financial year. An Indian national is now deemed a resident if they stay in India for at least 120 days.
  2. Resident – Not Ordinary Resident (RNOR): The requirement for being deemed an RNOR was increased from 2 out of the previous 10 years to 4 out of the previous 10 years.

Section VI (IA) – New Clause

The Finance Minister’s latest announcement introduces a new clause, stating that if an individual isn’t a resident of any other country, they’ll be deemed a resident of India by default. Once deemed a resident, they must disclose all assets and finances, whether from India or abroad.

Dividend Distribution Tax (DDT)

Under the current tax regime, companies deduct DDT on dividends paid to shareholders. However, the new regime exempts dividends from taxation at the shareholder level. Instead, companies will deduct TDS on distributed dividends. For NRI shareholders, TDS will be deducted under section 195, and dividend income will be taxed according to slab rates.

Source of IncomeResidentNot Ordinary ResidentNone-Residents
Income earned in IndiaTaxable in IndiaTaxable in IndiaTaxable in India
Any income received in IndiaTaxable in IndiaTaxable in IndiaTaxable in India
Income earned outside India but received in IndiaTaxable in IndiaTaxable in IndiaTaxable in India
Income earned and received outside IndiaTaxable in IndiaTaxable in IndiaNot Taxable in India
Any income earned outside India for a business or profession controlled in or from IndiaTaxable in IndiaTaxable in IndiaNot Taxable in India
Income earned outside India from any source other than business or profession controlled from IndiaTaxable in IndiaNot Taxable in IndiaNot Taxable in India

Read More: Guide: Income Tax for NRO and NRE Accounts

Web Stories: Guide: Income Tax for NRO and NRE Accounts

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

Pin It on Pinterest