Section 80EEA: Deduction for Interest on Home Loan for Affordable Housing

The Government of India extended income tax benefits for home loan borrowers and first-time homebuyers through its flagship scheme ‘Housing for All’. As a result, a new section ‘80EE’ was added to the Income Tax Act in the F.Y. 2013-2014. In 2019, it was replaced by Section 80EEA.

This article delves into the intricacies of Section 80EEA of the Income Tax Act, 1961.

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Table of content

Section 80EEA

Conditions for Claiming Deduction under Section 80EEA

Eligibility Criteria for claiming Deduction under Section 80EEA

Difference between Section 80EE and Section 80EEA

Deduction under Section 80C for Stamp Duty and Registration Charges

Deduction for Interest Paid on Under Construction Properties

Deduction under Section 24(b) on Home Loans

Deduction under Section 24(b) on Joint Home Loan

Deduction under Section 24(b) on Second Home Loan

Example of Calculating Deduction under Section 80EEA

Most Asked Questions

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Section 80EEA

Section 80EEA of the Income Tax Act, 1961, came into effect from April 1, 2020. It allows a deduction for interest on a loan taken for specific house property. The maximum limit for 80EEA exemption is INR 1,50,000 for a particular financial year. The deduction is allowed beginning from the date of sanction of loan till all the subsequent assessment years till the final repayment is made.

Homebuyers can claim an additional deduction of INR 1,50,000 over and above the normal deduction of INR 2,00,000 allowed under Section 24 of the Act. That means, an assessee can claim a total deduction of INR 3,50,000 in a particular financial year by combining the benefits of both the sections.

Conditions for Claiming Deduction under Section 80EEA

Following are the terms and conditions for claiming deduction under Section 80EEA:

• Only first-time homebuyers can claim deduction under Section 80EEA. That means the assessee should not possess any residential house property on the date of sanction of loan.

• A deduction of INR 1,50,000 can be claimed from the net taxable income  under Section 80EEA.

• If the property is located in any of the following metro cities: Mumbai, Hyderabad, Bangalore, Kolkata, Chennai, or Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), the carpet area must not exceed 60 square meters (645 square feet).

• For properties in any other town or city in the country, the carpet area cannot exceed 90 square meters (968 square feet).

• The stamp duty of the property must be INR 40 Lakhs or less.

• The housing loan must be obtained in the F.Y. 2019-2020 or F.Y. 2020-2021.

Eligibility Criteria for Claiming Deduction under Section 80EEA

Following assessees are allowed to claim deduction under Section 80EEA:

• Only individual borrowers are eligible to claim deduction under Section 80EEA for property purchased either singly or jointly.

• Section 80EEA does not apply to Association of Persons (AOPs), Hindu Undivided Families (HUFs), trusts, or companies.

• The taxpayer does not need to reside in the property, to be eligible for claiming deduction under Section 80EEA, as is the case with Section 80EEA.

Difference between Section 80EE and Section 80EEA

The following are the points of distinction between Section 80EE and Section 80EEA:

Deduction under Section 80C for Stamp Duty and Registration Charges

Eligibility and Conditions:

• Section 80C deduction is available to both individual buyers and Hindu Undivided Families.

• This deduction can be claimed in the year in which the expenses are incurred.

• The maximum deduction limit under Section 80C, which also includes other investment avenues, is INR 1.5 lakhs per annum.

Key Points:

• Stamp duty and registration charges paid for the purchase of a property can be claimed under Section 80C.

• In this case, the deduction applies even if the taxpayer is not living in that purchased property.

• Also, the deduction towards stamp duty and registration charges can be claimed even if you have not taken any home loan.

Deduction for Interest Paid on Under Construction Properties

Eligibility and Conditions:

• While purchasing a property which is under construction.

• The interest paid prior to completion of construction is allowed as deduction.

• Deduction is allowed in 5 equal installments commencing from the year in which the construction is completed.

Key Points:

• The total deduction that is allowed for the interest paid before completion of construction is restricted to INR 2 lakhs only under Section 24(b) in case of self occupied property.

• No limit is prescribed for deduction in respect of let-out or deemed to be let-out property.

Deduction under Section 24(b) on Home Loans

Eligibility and Conditions:

• The deduction is applicable on the interest component under Section 24(b) of a home loan.

• It is applicable for both self-occupied and rented out properties.

Key Points:

• In the case of self-occupied property, the maximum deduction is INR 2 lakhs per annum.

• In the case of rented out property, there is no upper limit on the interest amount which may be claimed as a deduction.

Deduction under Section 24(b) on Joint Home Loan

Eligibility and Conditions:

• The co-borrower who are also co-owners of the property in question who pay interest on a housing loan can claim this deduction. 

• Each co-borrower is eligible to claim a deduction of only up to INR 2 lakhs; in the case of rented property, there is no limit. 

Key Points:

• The aggregate interest claimed by the co-owners shall not be more than the total interest that is paid on the loan.

• All co-owners will have to be co-borrowers of the loan for this deduction to be claimed.

Deduction under Section 24(b) on Second Home Loan

Eligibility and Conditions:

• The interest paid on loans availed for a second home is allowed as a deduction under Section 24(b).

• If this second home is not let out, it is considered to be self-occupied.

Key Points: 

• The aggregate interest for both properties is deductible only up to INR 2 lakhs in case of a second self-occupied property.

• Otherwise, if the second home is let out, there will be no cap on the interest paid, and actual interest paid can be claimed as a deduction.

Example of Calculating Deduction under Section 80EEA

Assume Mr. A has taken a home loan for the property that falls under the conditions mentioned under Section 80EEA. Interest payable on the loan for the financial year is INR 3.2 lakhs.

Calculation:

• Interest Deduction under Section 24(b): Mr. A can claim up to INR 2 lakhs under this section.

• Remaining Interest: INR 3.2 lakhs – INR 2 lakhs = INR 1.2 lakhs

• Interest Deduction under Sec 80EEA: Mr. A, out of the remaining INR 1.2 lakhs, can claim up to INR 1.5 lakhs available under Section 80EEA. However, after deduction under Section 24(b), only INR 1.2 lakhs is left, so he can claim the whole amount of INR 1.2 lakhs.

Total deduction: INR 2 lakhs (under Section 24) + INR 1.2 lakhs (under Section 80EEA) = Total INR 3.2 lakhs.

Hence, Mr. A can claim a total deduction of INR 3.2 lakhs in that financial year by claiming interest paid on the home loan under Section 80EEA. The example clearly demonstrates how section 80EEA offers good saving on taxes, particularly to first-time homeowners who fit the eligibility criteria.

FAQ

Q1. Can an assessee claim deduction under Section 80EEA every year?

Yes. An assessee can claim deduction under Section 80EEA every year till the time of final repayment of loan is made.

Q2. Can joint owners be eligible for deduction under Section 80EEA?

Yes. Joint owners are eligible for deduction under Section 80EEA. The property should be registered under names of the joint owners, and both are the co-borrowers of the loan, then each can claim INR 1,50,000 as a deduction under Section 80EEA.

Q3. Can an assessee claim deduction under both Section 80EE and Section 80EEA towards the interest payment of home loan?

No. A deduction under one of the two sections can be claimed by the assessee at a time. Therefore, an assessee cannot claim deduction under both the sections, viz, Section 80EE and Section 80EEA towards the interest payment of home loan simultaneously. 

Q4. Does Section 80EEA allows the deduction towards the payment of principal amount of home loan?

No. Section 80EEA allows the deduction of interest on the home loan obtained for certain specific categories. Therefore, it does not allow deduction towards the payment of principal amount of home loan.

Q5. Can a deduction under Section 24 and Section 80EEA will claimed simultaneously?

Yes. Subject to the satisfaction of conditions specified under each section, an assessee can claim deduction under Section 24 and Section 80EEA simultaneously.

Q6. Can a deduction under Section 80EEA be claimed by AOPs, BOIs, HUFs, partnership firms, trusts, or companies?

No. Deduction under Section 80EEA can be claimed only by the individual assessees. Hence, AOps, BOIs, HUFs, partnership firms, trusts or companies are kept outside the purview of the said section.

Q7. Who is considered a first-time homebuyer under Section 80EEA?

A first-time homebuyer is someone who does not already own a house at the time of loan application for the purchase of a house. A working adult, even if single, is considered as a separate family member for tax purposes and, as such, a first-time home buyer, even if his parents own a house already.

Q8. Is there any specific requirement on the source of home loan to be obtained for claiming deduction under Section 80EEA?

To avail the deduction under Section 80EEA, the buyer must obtain the home loan from a financial institution, like banks or housing finance companies rather than from family members, friends or relatives.

Q9. Can the interest on loan used to reconstruct the entire property be claimed as a deduction under Section 80EEA?

No. The loan must be borrowed for buying the property and not reconstruction, repair, or maintenance of the same.

Q10. Can a deduction under Section 80EEA be claimed for the purchase of land or plot?

The Section 80EEA deduction can only be claimed for the purchase of residential dwellings, such as flats or apartments. Therefore, this section does not apply to the purchase of plot or land.

Q11. Can I claim deduction under Section 80EEA if I have availed a loan for a second home?

No, the deduction under Section 80EEA is specifically for first-time homebuyers. If you already own a residential property, you are not eligible to claim this deduction for a second home purchase.

Q12. Is the deduction under Section 80EEA available for properties under construction?

Yes, the deduction can be claimed for properties under construction as long as the loan is sanctioned between the specified financial years and other conditions, such as carpet area and stamp duty value, are met.

Q13. Can NRIs claim deductions under Section 80EEA?

Yes, Non-Resident Indians (NRIs) are also eligible to claim deductions under Section 80EEA provided they fulfill all the conditions like being first-time homebuyers and meeting the property value and loan requirements.

Q14. Can I claim the deduction if the home loan is cosigned with a non-family member?

Yes, as long as both co-borrowers meet the eligibility criteria of being first-time homebuyers and the property is co-owned, each co-borrower can claim a deduction up to Rs. 1.5 lakhs under Section 80EEA.

Q15. Does Section 80EEA apply to joint home loans where one person already owns a house?

No, if either of the joint borrowers already owns a house at the time of the loan sanction, the deduction under Section 80EEA cannot be claimed by either borrower.

Q16. Is the deduction allowed under Section 80EEA if the property is rented out?

Yes, the property does not have to be self-occupied to claim the deduction under Section 80EEA. The deduction can be claimed even if the property is rented out.

Q17. Can I claim deductions under Section 80EEA for home improvement loans?

No, the deduction under Section 80EEA is strictly for loans taken to purchase a residential property, not for home improvement, repairs, or reconstruction.

Q18. Can I claim the deduction if I availed a top-up loan on my existing home loan?

No, Section 80EEA does not provide deductions for top-up loans. It is only applicable to the original home loan used for purchasing the property.

Q19. Does Section 80EEA allow deduction for pre-construction interest?

Yes, if the property is under construction, you can claim the deduction for interest paid during the pre-construction period once the construction is complete, subject to other conditions under the section.

Q20. Is there any time limit to claim the deduction under Section 80EEA?

Yes, the loan must have been sanctioned between April 1, 2019, and March 31, 2021, to claim the deduction under Section 80EEA.