Deductions on Home Loan Interest Under Section 80EEA

In a bid to ensure affordable ‘Housing for all,’ the Central Government introduced Section 80EEA into the Income Tax Act, of 1961. The government took this decision in the Union Budget 2019, allowing first-time home buyers to enjoy deductions of up to ₹1.5 Lakhs on the home loan interest. 

The provisions of this section came into effect from April 1, 2020. This tax benefit is available over and above the exemptions provided by Section 24(b). According to this section, you can claim a total deduction of up to ₹2 Lakhs on the interest amount paid towards a home loan. 

Once you exhaust this limit, you are eligible to claim further deduction u/s 80EEA. This takes the total exemption amount available to first-time home buyers to up to ₹3.5 Lakhs.

To avail of this tax exemption on home loan interest, you need to fulfill the following Section 80EEA deduction eligibility criteria:

• You must be an individual taxpayer

• You must be a first-time home buyer  

• You must finance the property purchase with a loan from a housing finance company or recognised institution

• The property's stamp duty value should not exceed ₹45 Lakhs  

Apart from being a first-time individual home buyer, you need to fulfil certain conditions to claim deductions under Section 80EEA of the Income Tax Act:

• An exemption is available only on loans sanctioned between April 1, 2019, and March 31, 2022 

• The property's stamp duty value should not exceed ₹45 Lakhs  

Both Sections 24(b) and 80EEA allow you to enjoy tax rebates on home loans. However, here is how one differs from the other:

If you wish to claim tax deductions under Section 80EEA, here are some of the key highlights of these provisions you need to remember:

• Resident and non-resident individual taxpayers can avail of these benefits

• You can claim the tax benefits under this section even if the property is not self-acquired

The Finance Bill outlines the following conditions regarding the requirement of the carpet area:  

Metropolitan Cities

The carpet area must not exceed 645 square feet in metropolitan cities that include:

• Delhi NCR (Delhi, Noida, Greater Noida, Ghaziabad, Faridabad and Gurugram)

• Kolkata

• Mumbai

• Chennai

• Hyderabad

• Bengaluru

Other Cities

The carpet area must not exceed 968 square feet in other cities or towns.

To help you understand Section 80EEA exemption calculations, here is an example. Say Mr. X is a first-time home buyer who purchased a house property with a registration stamp duty of ₹45 Lakhs. 

If he pays ₹5 Lakhs as interest on a home loan in a year, he can avail of tax exemption of ₹2 Lakhs under Section 24(b). Not only that, he can also claim deductions of up to ₹1.5 Lakhs under Section 80EEA over and above the tax benefits available under Section 24(b).

You can claim tax deductions on stamp duty and registration charges under Section 80C of the Income Tax Act of 1961. However, they need to be under the maximum deduction limit of up to ₹1.5 Lakhs in a year on principal payments.

The home buyers can avail of tax deductions on interest paid on properties under construction. However, the total deductions available is 1/5th of the interest in the pre-construction period plus the interest in the post-construction period.

On joint home loans, you can avail of deductions of up to ₹2 Lakhs under Section 24(b) on the interest paid. In addition, you can also claim exemption on the principal paid under Section 80C. 

As per the new rules introduced by the Central Government in the Union Budget of 2019, you can claim a tax rebate on a second home loan. However, these benefits are subject to the restrictions on tax benefits under the relevant sections of the Income Tax Act.