Owning a home is a long-term goal for many people. Today, attractive rates on housing loans are making it much easier for people to buy their dream home hassle-free. Through these loans, individuals can easily continue paying monthly EMIs to lessen the burden of exhausting all of their savings in one transaction.

The government also recognizes that many individuals are moving towards making investments in real estate, which is why it provides tax benefits linked to home loans.

With the introduction of home loan tax benefits and home loan tax exemptions, those buying a home can avail of tax benefits while filing their income tax returns.

What is Section 80EE?

Section 80EE allows a deduction of Rs. 50,000 for interest paid on a home loan by a first-time home buyer. This interest on home loan deduction is for loans sanctioned by financial institutions between 1st April 2016 and 31st March 2017. Rs. 50,000 could be directly reduced from the income declared in the income tax returns as per the Section 80EE deduction. The other conditions of the Section 80EE deduction were that the value of the house should be less than Rs. 50 lakhs and the loan value should not be more than Rs. 35 lakhs.

Those who have taken a home loan in FY 16-17 and fulfil the other conditions of this section can claim the Section 80EE deduction every year until they repay their loan.

What is Section 80EEA?

Section 80EEA was introduced as part of the Income Tax Act in the budget session of 2019. The objective of this section was to make housing loans more affordable by allowing tax benefits through interest on home loan deduction. The maximum home loan interest tax benefit available under Section 80EEA is Rs. 1,50,000.

Eligibility Criteria for Section 80EEA

  • It is available only to individuals and not business entities.
  • Only first-time home buyers can claim benefits.

Other Features of Section 80EEA

  • The interest on home loan deduction can be claimed against the interest payments of a home loan only.
  • The benefits can be claimed by borrowers whose home loans were sanctioned between 1st April 2019 to 31st March 2022.
  • The deduction limit is up to Rs 1,50,000 per year.
  • The home loan taken by the buyer has to be from a financial institution like banks, housing finance companies, etc.
  • The stamp value of the property should not exceed Rs. 45 lakhs.
  • In metro cities like Mumbai, Chennai, Kolkata, Delhi, Bengaluru etc., the carpet area of the property should not exceed 60 square metres (645 square feet).
  • In other small cities or towns, the carpet area should not exceed 90 square metres (968 square feet).

Home Loan Tax Benefits for Under Construction Properties

House loan tax exemption of the interest portion of a home loan can also be claimed through Section 24 of the Income Tax Act up to a limit of Rs. 2 lakhs. However, the home loan tax benefit under Section 24 can only be claimed when the construction of the property has been completed.

From the time the home loan was taken till the time the construction of the property is complete, the interest on the loan cannot be claimed directly as a deduction under Section 24 and is called the pre-construction interest. Such pre-construction interest on home loan deduction can be claimed under Section 24 in five equal instalments after the completion of the construction. However, a homeowner can claim the benefit of Section 80EEA even during the construction phase.

Therefore, if a homeowner is eligible for deduction under Section 80EEA, it would be beneficial to first exhaust the limits available under this Section and then claim the balance pre-construction interest as a deduction under Section 24 in five equal instalments.

For example, if the interest is Rs. 1,50,000 for the first two years during construction and Rs. 2 lakh from year 3, here is how Section 80EEA can help:

Year The benefit of Section 24 only Benefits of Section 80EEA and Section 24
Year 1 – pre-constructionNone1,50,000
Year 2 – pre-constructionNone1,50,000
Year 32,00,000 (1.5 lakh * 2 years / 5 instalments) + 2 lakh of the year limited to Rs. 2 lakh Rs. 1,50,000 under Section 80EEARs. 50,000 lakh under Section 24
Year 42,00,000 (1.5lakh * 2 years / 5 instalments) + 2 lakh of the year limited to Rs. 2 lakh Rs. 1,50,000 under Section 80EEARs. 50,000 under Section 24

Therefore, homeowners can claim the benefit of pre-construction interest and regular interest in a better way if they meet the criteria of Section 80EEA.

Key Takeaways

The two components of a housing loan are interest payment and principal repayment.

Section 80EE, Section 80EEA and Section 24 offer home loan tax benefits on the interest component. Section 24 can be clubbed with Section 80EEA if the conditions are met. But if the construction is not completed within five years, the maximum limit for deduction under Section 24 is only Rs. 30,000.

Further, the home loan tax benefit also extends to the principal portion of the home loan. The principal portion is also allowed a deduction under Section 80C, up to Rs 1.5 lakh. House registration and stamp duty are also eligible for tax deductions.

If a home loan is jointly taken, the co-owners can claim a deduction of up to Rs 2 lakh each for the home loan interest payments and a deduction of up to Rs 1.5 lakh each on the principal repayments.

Conclusion

Thus, home loans have many tax benefits. Home loans can also cover any shortage of funds that one might have while thinking of building their dream house. Tata Capital has a wide range of home loan offers catered to meet home buyers’ needs with attractive interest rates.

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