Section 80EE Deduction
Home loans help an individual buy the desired house. The repayment of the lump-sum amount is enabled through EMI or Equated Monthly Installments. The installment is planned in a structured way to achieve the goal of ownership.
The Income Tax Department offers tax benefits on home loans. Loans paid through EMI consist of two components, mainly principal and interest. The tax department treats the two components of the loans differently. Investors can avail home loan tax benefits by claiming income tax deductions supported by different sections of the Income Tax Act.
What is Section 80EE?
Section 80EE is one of the tax benefits, which the government of India introduced in the financial year 2013-2014. This incentive applies only to the interest portion of home loans to first-time buyers. This claim can be continued until the last repayment of the loan. This section has been outlined for individual taxpayers.
Features of Section 80EE
Both residents and non-residents Indians can claim this benefit. The loan cannot be obtained for commercial properties such as companies, trusts, AOP, and HUF. It is applicable only for residential properties. There is no compulsion of self-occupied property. The section applies only to first-time buyers. It can be obtained either individually or jointly. In joint loans, both the applicants can claim deductions under this act, and the installments are paid by both.
Utilize Section 80EE the most by ensuring deductions that are offered under this act and get relief from home loans. This section promotes a lot of savings yearly.
On how much amount can rebate be availed?
|Sections Under Income Tax Act||Maximum Amount to Avail Rebate|
|Section 24||Up to Rs.2 lakh if the owner is residing in the property No limit (for rent property)|
|Section 80C||Rs.1.5 lakh from Principal|
|Section 80EE||Rs.50,000 Additional interest (in case of first-time purchase of a house)|
Thus, the deductions on property loan can be detailed as follows:
- It is is related to the interest portion of the loan.
- A buyer can avail of a maximum deduction of Rs. 2 Lakh if he has self-occupied the property.
- The buyer can claim any amount that he has paid as interest if he has rented out the property.
- If the loan is joint, then each party can claim maximum deductibles.
- The Rs. 2 Lakh deduction for the construction of property can be claimed only if it is completed within a timeframe of five years. If not completed in five years, the borrower can claim a deduction of only Rs. 30,000. If the property is a let-out property, any amount can be claimed that was spent as interest, whether the property has completed construction or not.
- It is related to the principal amount of the loan.
- Rs 1.5 Lakh per annum deduction applies to both self-occupied and rented out properties
- The exemption applies to the completion of the construction of a property
- The claim can be obtained if the property is not sold within five years after possession
- The deduction claim will be reversed if the property is sold within five years after possession. The reversal is done on the year of sale of a property and the amount added to the applicant’s income
- If there is a co-applicant, each applicant can claim a maximum of Rs 1.5 Lakh as a principal reduction
- Under this section, an applicant can claim the stamp duties and registration fees paid for the property
- It can be claimed by first-time buyers on the interest portion of the loan.
- The property value must be Rs 50 Lakh or less
- The maximum amount for a home loan cannot exceed Rs 35 Lakh
- An additional interest amount of up to Rs 50,000 can be claimed every year until the completion of repayment
- In the case of joint home loans, each individual can claim a deduction on interest up to Rs 2 Lakh each. Tax on the principal amount can be deducted up to Rs 1.5 Lakh. These claims are eligible only if all the applicants are co-owners of the property
Eligibility Criteria for Claiming Tax Rebate under Section 80EE
The owner must be a first-time buyer. The loan should be availed from a recognized financial institution. The section does not apply on a property basis; it applies to individual taxpayers. The section can be utilized by joint owners of the property. Both parties are individually eligible for the benefits as each contributes to the monthly instalments. The benefit is applicable only for residential properties. The claim can be availed by both self-occupied individuals or on a rent basis.
- Raj buys an under-construction property. He repays the loan through EMI. On completion of the construction, Raj is aware that he can claim for interest on the home loan. He is also eligible to claim if he purchases an entirely constructed building. Raj was not subjected to tax burden during the period between the on-going loan and completion of construction. He explains the reason well. The income tax law offers benefits on pre-construction interest. This benefit can be availed in five equal instalments after the completion of the property in addition to the other benefits that can be claimed for house property income.
- Maya lives in Bangalore on rent and has a property in Hyderabad. Maya is still eligible for the deductions under Section 80EE.
- Rahul and Poornima bought their first dream home for Rs 50 Lakh in December 2017. They applied for a joint home loan of Rs 35 Lakh from a recognized bank at 8% interest. They would be paying Rs 2,77, 327 as interest and Rs 73,978 as home loan for a principal amount in a year. Both Rahul and Poornima have registered as co-borrowers in the joint loan. They can individually claim Rs 2 Lakh as a deduction under Section 24 on home loan interest payment and then claim Rs 50,000 under Section 80EE. They realize that the entire deduction would not have helped them cover the total interest of Rs 2,77,327 if it was a single loan. The joint loan helped them claim up to Rs 5 Lakh of their income as tax exemption per year by claiming additional benefits under Section 24 and Section 80EE. The couple could also avail of the advantage of Section 80C of up to Rs 1.5 Lakh as tax exemption for the home loan principal amount. This sum up to Rs. 8 Lakh as tax exemption from their annual income.
How is Section 80EE Rebate Calculated?
At the time of filing income tax returns, a taxpayer can calculate his rebate using an online calculator.
The following details are used to tabulate:
- The loan amount towards your repayment
- Rate of interest
- The date at which loan availed
- Gross annual income
- Existing deduction under section 24, 80C, and 80EE
How to Claim the Rebate under Section 80EE?
The rebate can be claimed as follows:
- Add the amount of interest paid during one financial year
- After the total interest is calculated, claim the existing deduction under Section 24 and Section 80C
- Claim the balance amount under Section 80EE for up to Rs 50,000
Ans: A deduction of up to Rs 50,000 can be claimed under this section per financial year.
Ans: The claim is benefitted to loans sanctioned between April 1, 2016, and March 31, 2017.
Ans: Yes, a loan insurance cover safeguards the borrower in case of any untoward incident. The loan cover will take care to pay the outstanding instalments. The insurance cover can also protect you from burglary or damages to property. There are options to choose an insurance policy depending on the requirements.
Ans: If two properties are owned, then only one property is considered as self-occupied. The second home is taxable under notional rent. As per the budget of February 2019, the second home can also be claimed as self-occupied. This will facilitate tax exemption from notional rent and claim tax benefits on home loans for the second property.
Ans: If an individual is residing on rent and also has a home loan, he is entitled to tax benefits both on home loan and on the rent he pays. This claim is eligible only if the individual resides in the house rented. The claim cannot be made if dependent members are residing in the house without the individual.
Ans: An individual can claim the benefit depending on the House Rent Allowance received from employment if the value is 50% of his salary residing in the metro city, and 40% from other cities. The claim also depends on the actual rent, minus 10% of the individual’s salary.
Ans: Section 80EE is applicable only for residential purposes.
Q: If an investor purchased a new house in January 2017, when can he claim tax benefit for a home loan?Ans: He should claim the benefit by March 2017.