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Comprehending Section 80EE: Home Loan Interest Tax Deductions

Contrary to popular belief and the jitters that buying a house for the first supposedly induces, a home loan can be beneficial to the first-time buyer-taxpayer. Section 80EE of the Income Tax Act of 1961 enables taxpayers to claim an extra deduction of up to Rs. 50,000 by fulfilling certain criteria.

It is worth understanding that this benefit is specifically on the interest paid on the home loan and is not part of Section 80C of the Income Tax Act 1961.

Under the declaration made during the 2023 Budget, while computing the capital gains tax applicable on the sale of a residential property, any interest paid on home loans claimed by the seller as a deduction under income tax during the period of their ownership shall not be considered as a part of the cost of acquisition, which refers to the original purchase price of the property.

Let us take an informative dive into the eligibility criteria to qualify for claiming 80EE deductions.

1) The benefits that can get claimed by individual taxpayers either separately or together. If a person has purchased a property with their spouse and both of them are making loan payments, they can both claim the deduction. However, entities such as Associations of Persons (AOP), Hindu Undivided Families (HUF), Companies, Trusts, and others are not eligible for this tax benefit.

2) To be eligible for tax benefits under Section 80EE, only individuals who are purchasing their first home can claim it, which means that they do not own any other residential property on the date when the loan is sanctioned. Additionally, the loan must be obtained from either a financial institution or a housing finance company for the deduction to be claimed.

3) Please note that the tax benefit under Section 80EE gets offered to individuals and not per property. In addition to the limit of Rs. 2 lakh allowed under section 24(b), a maximum deduction of Rs. 50,000 is permitted under this section.

A concise overview of the prerequisites for declaring 80EE deduction

1) The house being purchased should not exceed the value of Rs. 50 lakhs.

2) The loan amount taken for the house should not exceed Rs. 35 lakhs.

3) The loan should be approved by a financial institution or a housing finance company.

4) The loan should be approved within the time frame of 01.04.2016 to 31.03.2017.

5) The person claiming this benefit should not own any other residential property at the time when the loan was sanctioned.

Comprehending the categories section 80EE and section 80EEA

Tax benefits on interest deductions of up to Rs. 1,50,000 for affordable housing loans taken during the period 1 April 2019 to 31 March 2022 are now available under the recently introduced Section 80EEA of the Union Budget 2019. To claim this benefit, the individual taxpayer should be a first-time home buyer and not eligible for deduction under Section 80EE.

The amount of deduction for interest under Section 24 for a self-occupied property is limited to Rs. 2,00,000, while there is no limit for non-self-occupied property. As for Section 80C, the amount of deduction for the principal for a self-occupied property is Rs. 1,50,000, while it is also Rs. 1,50,000 for a non-self-occupied property. Under Section 80EE, the interest deduction is limited to Rs. 50,000 for both self-occupied and non-self-occupied properties.

Taxpayers can avail of tax benefits on the interest paid on home loans under two sections, namely section 80EE and section 24, with a combined upper limit of Rs 2,50,000. This amount can be divided between the two sections as follows: section 24 allows deductions of up to Rs 2,00,000, while Section 80EE allows deductions of up to Rs 50,000. Together, taxpayers can claim a maximum total deduction of up to Rs 2,50,000.

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1) Can I exempt my second home from paying taxes?

Under section 80EE, the benefit on the second house is not available.

2) Is it possible for me to use both section 24 and section 80EE to my advantage in a same tax year?

In a single year, you may claim tax benefits under both sections 24 and 80EE. First-time house buyers can claim a tax deduction under Section 80EE of the Income Tax Act of 1961 for the amount they pay as interest on a home loan, but the loan must be sanctioned between January 1, 2016, and March 31, 2017, inclusive. The most that can be deducted under this clause in a fiscal year is Rs. 50,000. The amount that may be claimed is greater than the Section 24 deduction of Rs. 2,000,000.

3) Could you shed light on the difference between Section 80EE and Section 24(b) under the premise of Income tax act and elaborate on the nitty gritty to be kept in mind for both?

For self-occupied property, a deduction of Rs 2 lakh is permitted under Section 24(b), while for property that is rented out, the entire interest is deductible.

However, Section 80EE only permits a further deduction of Rs 50,000 once the Section 24(b) cap has been reached. It is available to those taking out loans from financial institutions between 1st April 2016 and 31 March 2017 who are first-time home buyers.

4) What is the provision of Section 80EE regarding claiming a deduction of interest on a home loan in subsequent years if it was not claimed in the Financial Year 2016-2017?

Section 80EE does not have a condition that prohibits the taxpayer from claiming a deduction of interest on a home loan in subsequent years if they did not claim it in the FY 2016-17. Therefore, the taxpayer can claim the deduction now as well, provided they have not completed the loan repayment.