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Can I claim 80EEA for an under-construction property?

Can I claim 80EEA for an under-construction property?

Owning a home is a long-term goal for many people. Today, the 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 and eliminate 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 tax benefits while filing their income tax returns.

This blog takes you through what 80EEA is and the tax benefits you can claim under it for an under-construction property. 

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. The amount of 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 lakh and the loan value should not be more than Rs. 35 lakh.

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

Also, read – Token money meaning & importance in property deals

What is Section 80EEA?

After learning about Section 80EE, it is vital to understand what 80EEA is. 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 lakh.
  • 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).

Also, read – Difference between pledge, hypothecation, and mortgage

How to claim 80EEA deduction on an under-construction property?

Here’s a step-by-step guide to claim 80EEA deduction:

  1. Make sure the home loan is approved between 1st April 2019 and 31st March 2022, and the stamp duty value is within Rs. 45 lakh.
  2. Confirm that you do not own any residential property on the loan sanction date.
  3. Check the eligibility for an under-construction flat loan. You cannot claim a deduction under Section 80EEA till construction is completed and you have received the possession certificate. 
  4. Obtain the home loan interest certificate from your lender.
  5. Start claiming the deduction only after possession, including pre-construction interest, in five equal installments.
  6. While filing your ITR, declare the interest under Section 80EEA separately.
  7. Retain all documents for verification.

Also, read – Can I claim home loan interest tax benefits before possession?

Pre-construction interest and tax benefits

Pre-construction interest refers to the interest paid on a home loan when the property is under construction. It starts from the date of borrowing and goes on until possession. The interest cannot be claimed as a tax deduction in the same year. It is accumulated and allowed as a deduction only after possession is obtained. 

The total pre-construction interest can be claimed in five equal annual installments, starting from the year of completion. It is eligible for deduction under Section 24(b). If applicable, the excess interest can also be claimed under Section 80EEA, subject to prescribed limits.

Also, read – GPRA Complex – How to Apply for GPRA Quarters via eSampada and e-Awas?

Comparison between Section 80EE, 80EEA, and Section 24

Sections 80EE, 80EEA, and 24 of the Income Tax Act provide different types of home loan tax benefits. Section 80EE provides tax benefits to first-time buyers. The limit is up to Rs. 50,000, and the loan must have been granted between 1st April 2016 and 31st March 2017. Section 80EEA deductions apply to interest paid on loans granted between 1st April 2019 and 31st March 2022. The limit is up to Rs. 1.5 lakh for affordable housing loans. Section 24(b) allows up to Rs. 2 lakh deduction on home loan interest for a self-occupied house. 

Also, read – Home Loan Settlement Process: Key Steps & Tips

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 lakh. 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 installments 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 installments.

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.

Also, read – Home Loan Insurance: Coverage & Benefits

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 annually.

Further, the home loan tax benefit also extends to the principal portion of the home loan. The principal portion is allowed a deduction under Section 80C of 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

Home loans have many tax benefits. They 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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FAQs

What documents are required to claim 80EEA for an under-construction property?

 

The documents required to claim 80EEA for an under-construction property include the home loan interest certificate from the lender, the loan sanction letter, the property purchase agreement, the stamp duty valuation, possession letter (once received), and proof that you did not own any residential property on the loan sanction date.

Can I claim both Section 80EEA and Section 24 deductions together?

 

Yes, you can claim both the Section 80EEA deduction and the Section 24 deduction together. You must first claim up to Rs. 2 lakh on home loan interest under Section 24(b). Then, you can claim any additional eligible interest of up to Rs. 1.5 lakh separately under Section 80EEA.

Is the carpet area limit different for metro and non-metro cities under Section 80EEA?

 

Yes. For metro cities, the maximum carpet area allowed is 60 square meters, while for non-metro cities, it is 90 square meters. The property must meet these limits to qualify for the deduction.

What happens if the property possession is delayed beyond the loan sanction terms?

 

If the possession is delayed, you cannot claim the 80EEA deduction. This is because you are entitled to tax benefits from the financial year in which the property’s possession is taken, or the construction is completed, whichever is earlier. Pre-construction interest can also be claimed only after possession, spread equally over five years.

Can resale properties qualify for the 80EEA deduction?

 

No. Section 80EEA deduction is applicable only to first-time homebuyers purchasing a new residential property. Resale or second-hand properties are not eligible for deduction under this section.

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