What is Section 80EE of Income Tax Act, 1961?
Section 80EE of the Income Tax Act, 1961 provides benefits for tax deductions on the interest paid on home loans taken by a first time home buyer. A buyer in such a case can claim tax deductions up to INR 50,000 under Section 80EE of the Act. The available tax deduction limit under Section 80EE is over and above of what has been provided under Section 80C and Section 24 of the Income Tax Act, 1961.
Section 80EE first came into force during the Financial Year 2013-14 for individual taxpayers to avail deductions on interest on home loans. At that time the provision was operative for only two years, i.e. during the financial year 2013-14 and 2014-15. The deductions which were permissible earlier was limited to INR 1 lakh. However, now this provision has been reintroduced, effective from the Financial year 2016-17 and the deduction now allowed is INR 50,000 per year until the loan is repaid.
Section 80EE: What is the Eligibility criteria?
Sub-section (1) says that when the total income of an assessee is computed deductions shall be there in accordance with and subject to the provisions of this section and that he/her takes the interest payable on the loan from any financial body for acquiring a residential property.
Sub-section (2) says that deductions cannot exceed more than INR 50,000.
According to sub-section (3), deductions under sub-section (1) shall be based on the following conditions:-
i) The loan has been sanctioned by the financial body during April 1, 2016, to March 31, 2017.
ii) Amount of loan does not exceed INR 35 Lakh rupees.
iii) The amount of residential property does not exceed more than fifty lakh rupees.
iv) The assessee does not own any residential house on the date on which the loan is sanctioned.
Sub-section (4) says that deduction shall not be allowed under any other provision of this Act.
- It is for individual taxpayers who have purchased a house for the first time and have taken a home loan can claim the tax deduction benefit under Section 80EE.
- The individual must not be owning a separate house on the date of loan sanction.
- Value of the house must not exceed INR 50 lakhs
- Value of the home loan availed cannot exceed INR 35 lakhs
- The deduction will be up to INR 50,000 per annum and only available on the interest paid for the home loan
- A recognized financial body should sanction the loan and disburse during the period of 1, April 2016 – 31, March 2017.
- The loan cannot be availed for commercial properties.
Section 80EE: How can it help you?
- Under Section 80EE, an additional tax deduction up to INR 50,000 can be made. This deduction excludes the deduction limit of INR 1.5 lakh available under Section 80C and up to INR 2 lakhs available under Section 24 of the Act.
- This benefit can only be claimed by an individual taxpayer and not entities such as the Hindu Undivided Family (HUF) or the Association of Persons (AOP). However, the deduction can be claimed if the said property is bought jointly by 2 or more than two individuals.
- If the property is jointly held with the spouse, then the tax benefit can be proportionately claimed by both the parties.
- It is not mandatory for the borrower to reside in the property for which tax deductions have been claimed. The benefit of the purchased property can be availed while he continues to reside in rented accommodation. However, the borrower can only claim such a benefit if he proves that the possession of the home has been completed.
- Tax benefit under Section 80EE can be availed only when the home loan interest payment benefit under Section 24 has been exhausted.
- The property can be either self-occupied or non-self occupied in nature.
- The Section allows both Resident and Non-Resident Indians to claim benefit since it does not specify that being a resident of India is mandatory or not in this regard.
How is Section 80EE different from Section 24?
Deductions can be availed for interest on home loan under Section 24. The maximum limit under Section 24 is INR 2 lakhs. This deduction can only be claimed if the borrower or his or her family resides in that property. As pointed out above, exhaustion of the limit under Section 24 is required to claim additional benefit under Section 80EE.
Every individual is interested in saving taxes. Tax saving is possible only when the individual takes advantage of the various provisions contained under the Income Tax Act, 1961. Section 80EE and other provisions of the Act provides numerous ways for individuals to save taxes in a legal way and in turn save money for himself/herself and his or her family. Many people resort to illegal means to avoid taxes, which is unacceptable and it seriously puts their life in jeopardy. A home loan is perhaps one of the important loans which both the salaried and the self-employed people undertake at least once in their life. Therefore, Section 80EE plays a very important part in the life of such people. Careful and wise planning for saving taxes is advisable.