Everything you Need to Know About Section 80EEA for Deductions on Home Loan Interest

Deepa Agarwal

Architect

First-time buyers in India enjoy an additional tax deduction if the property is bought with the help of a home loan from the bank or any financial institution. Provisions have been made in the Income Tax Act, 1961, to offer exemption for first-time buyers to purchase affordable homes. The benefits are included in Section 80EEA and Section 80EE.

Section 80EEA of ITA
Introduced by Finance Minister, Nirmala Sitharaman, in the Budget 2019, Section 80EEA aims to boost the government’s ‘Housing for All by 2022’ programme. The Section offers a various tax deduction on purchasing the affordable home.

Section 80EEA states that in computing the total income of an assessee, being an individual not eligible to claim deduction under Section 80EE, there shall be deducted, subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the acquisition of a residential house property.

Amount of deduction available
In her speech during Budget 2019, Finance Minister, Nirmala Sitharaman said that interest paid on housing loan is allowed as a deduction to the extent of Rs 2 lakhs in respect of the self-occupied property. To provide further benefit, I propose to allow an additional deduction of Rs 1.5 lakhs for interest paid on loans taken up to March 31, 2020, for purchasing an affordable house up to Rs 45 lakhs in value. Therefore, a person purchasing an affordable house now will get an enhanced interest deduction up to Rs 3.5 lakhs. The period was later extended to another year and added in the Budget 2020.

Income Tax Deduction on the Interest Paid

Section 24(b): for the self-occupied property, deduction of Rs 2 lacs and if the property is let out then the deduction on the entire interest paid.
Section 80EE: After exhausting the deduction limit under Section 24(b), an additional deduction of Rs 50,000for the first-time home buyers for the home loan approved between April 1, 2016, to March 31, 2017.
Section 80EEA: After exhausting the deduction limit under Section 24(b), an additional deduction of Rs 1.5 lacs for the first-time buyers for the home loan taken to purchase affordable homes. Both Section 80EE and Section 80EEA cannot be claimed together.

FAQs

Who can claim the exemption? Only first-time buyers can claim the deduction under this Section. The home loan borrower should not be the owner of any residential property beforehand.
What is the deduction for?Deductions under this section can only be claimed for the interest paid on the home loan taken.
Deduction limitUnder this section, the deduction limit if Rs 1.5 lacs per year.
Period covered under this scheme? Borrowers can claim the benefit of the deduction for the home loan taken between April 1, 2019, to March 31, 2021.
Who can apply for this? Only individual buyers can claim the deduction under this scheme. Companies, Hindu Undivided Families etc cannot claim the benefit under the scheme.
What can be the source of a home loan? To claim the benefit, it is a must that the buyer has taken home loan from any government recognised public or private sector banks or any financial institute. The loan taken from friends and family is not applicable for the deduction.
What should be the value of the property? The value of the property should not exceed Rs 45 lacs.
What are the types of properties covered under this? Only residential properties can be used to claim the deduction. Any loan taken for repair, renovation or construction of the house is not applicable for the same.
Is there any limitation? The buyers can either claim the deduction under Section 80EE or Section 80EEA, not both.
Can NRIs claim the deduction? The law does not specify if the buyer should be a resident of India or not. Hence, it is perceived that even NRIs can claim the deduction.
Conditions to claim deductions under Section 80EEAAccording to the bill, if the property is located in the metropolitan city, then the size should not exceed from 645 sq ft or 60 sqm. In other cities, the size is limited to 948 sq ft or 90 sqm.
Which cities are considered metropolitan?Mumbai, Delhi, Kolkata, Bengaluru, Hyderabad, Greater Noida, Gurugram, Faridabad, Ghaziabad and Noida are considered metropolitan.
Can deduction be claimed for properties that are not self-occupied?Section 80EEA does not specify whether the property shall be self-occupied or not. This allows buyers who are living in rented accommodation to claim deductions while also claiming HRA benefits.
Can joint owners claim the deduction?In the case of joint owners, the owners are entitled to claim the tax deduction of Rs 1.5 lacs.

Difference between Section 24(b) and Section 80EEA

Buyers can claim the deduction under both the sections increasing their non- taxable income Rs 3.5 lacs.

Category	Section 24(b)	Section 80EEA
Possession	Must	Not required
Loan source	Banks or personal sources	Only banks
Deduction limit	Rs 2 lacs or entire interest	Rs 1.50 lacs
Property value	No specification	Rs 45 lacs
Loan period	Loans taken after April 1, 1999	April 1, 2019, to March 31, 2021
Buyer category	All home buyers	First-time individual home buyers
Lock-in period	None	None

Difference between Section 80EE and Section 80EEA

Particulars	Section 80EE	Section 80EEA
Property value	Up to Rs 50 lacs	Up to Rs 45 lacs
Loan amount	Up to Rs 35 lacs	Not specified
Loan period covered	April 1, 2016, to March 31, 2017	April 1, 2019, to March 31, 2021
Maximum rebate	Rs 50,000	Rs 1.50 lacs
Lock-in period	None	None

How is the tax calculated?

Let us take an example of Person A who has an annual income of Rs 15 lacs. Let us assume that Person A does not enjoy any deduction so far. His total payable tax currently would be:
Rs 15 lacs – Rs 40,000 (This is the standard deduction all taxpayers in India enjoy) = Rs 14.60 lacs
Person A falls in the Rs 12.5 lacs -Rs 15 lacs tax bracket. So, the highest rate at which his income will be taxed is 30 percent.

Split of Rs 14.60 lacs for tax calculations

Rs 2.5 lacs (@0%) = 0
Rs 2.5 lacs (@5%) = Rs 12,500
Rs 5 lacs (@20%) = Rs 1,00,000
Rs 4.6 lacs (@30%) = Rs 1,38,000
Total = Rs 2,50,500 + cess (@4%) = Rs 10,020

Person A’s total tax outgo = Rs 2,60,520

Now, let us assume that Person A invests in his maiden property to lower his tax outgo. He buys a property worth Rs 45 lacs, for which he is takes 80% of the property value (Rs 36 lacs) as loan from a scheduled bank at an 8% interest rate.

Key numbers

Loan amount: Rs 36 lacs
Tenure: 15 years
Interest rate: 8%

This would lead to:

EMI of Rs 34,403
Total interest (in 15 years): Rs 25,92,624
Total payable (in 15 years): Rs 61,90,624

If Person A took the loan in December 2019, through 2020 (the first year of the loan tenure) he would be paying:

Rs 1,29,522 as home loan principal
Rs 2,83,319 as home loan interest

Under Section 80C, which offers rebate against specific investments, including home loan principal, Person A can get Rs 1,29,522 from his income made tax-free (the upper limit under this Section is Rs 1.50 lacs in a year).

Under Section 24(b), he can claim Rs 2 lacs as a deduction against the interest paid.

Now, under Section 80EEA, he can also claim the remaining Rs 83,319 as a deduction from the overall limit of Rs 1.50 lacs.

After applying all these deductions, here is the breakup of Khanna’s total taxable income:

Rs 15 lac – Rs 40,000 (Standard deduction) = Rs 14.60 lac

Deduction under Section 80C: Rs 1,29,522
Deduction under Section 24(b): Rs 2,00,000
Deduction under Section 80EEA: Rs 83,319
Total deductions: Rs 4,12,841
Total taxable income: Rs 14,60,000 – Rs 4,12,841 = Rs 10,47,159

Person A still falls in the category of over Rs 10 lac taxable income, so the highest rate at which his income is taxed remains 30%, but the amount to be taxed at 30% has come down significantly. Here is the split of his income for tax calculations:

Rs 2.5 lacs (@0%) = 0
Rs 2.5 lacs (@5%) = Rs 12,500
Rs 5 lacs (@20%) = Rs 1,00,000
Rs 47,159 (@30%) = Rs 14,148
Total tax: Rs 1,26,648 + cess at 4% = Rs 5,066
Total tax outgo: Rs 1,31,714
Total savings as against the earlier outgo: Rs 2,60,520 – Rs 1,31,714 = Rs 1,28,806

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