Take a home loan before March 31 to avail benefit under section 80EEA

A key positive of this deduction is that you don't have to wait until possession to begin claiming it

In Union Budget 2021, the government extended the additional tax deduction of Rs 1.5 lakh on interest paid on housing loans for the purchase of affordable homes under Section 80EEA of the Income-Tax (I-T) Act, 1961 by one more year. Borrowers can now avail of this deduction till March 31, 2022.

Section 24 (b) and 80C

The key deductions that anyone who takes a home loan can avail of fall under Section 24 (b) and Section 80C.

The deduction under Section 80C on the interest component can go up to Rs 2 lakh if the owner or his family lives in the house. Adesh Agarkar, associate Victoriam Legalis- Advocates & Solicitors says, “The same treatment applies when the house is vacant. But if the house is rented out, the entire interest on the home loan is allowed as deduction.”

Borrowers can also avail a deduction of up to Rs 1.5 lakh on the principal component under Section 80C.

Section 80EEA

Section 80 EEA deduction is available on the interest component over and above the Rs 2 lakh deduction under Section 24(b). An individual eligible for deduction under Section 80EEA can avail of a total deduction of Rs 3.5 lakh on interest paid on the purchase of an affordable house in a financial year (Rs 2 lakh under Section 24 (b) and Rs 1.5 lakh under Section 80 EEA).

Conditions apply

Borrowers need to fulfil several conditions to avail of this benefit. This deduction is available only on home loans taken within a limited span. Suvigya Awasthy, associate partner, PSL Advocates & Solicitors says, “The individual should have taken the loan from a financial institution such as a bank between April 1, 2019 and March 31, 2022.”

The house’s stamp duty value should not exceed Rs 45 lakh. Another eligibility criterion relates to size. Moiz K Rafique, managing partner, Privy Legal Service LLP says, “The carpet area of the house should not exceed 60 square metres (645 square feet) in metro cities and 90 square metres (970 square feet) elsewhere.”  

On the date of sanction of the loan, the borrower should not own any other house property. The loan should be taken for purchasing a property and not for repair, reconstruction, or maintenance.

Who can avail and who can’t

Besides individuals, joint owners, who are co-borrowers, can also claim the deduction individually. Agarkar says, “This section does not specify if you need to be a resident to claim this benefit. Therefore, it can be concluded that both resident and non-resident Indians can claim it.”

Hindu Undivided Family (HUF), companies, association of persons (AOP), partnership firm, a company, or any other kind of taxpayer, cannot claim any benefit under this section. It can also not be availed for purchasing a plot, or even for reconstructing or repairing a home.

Different from Section 24 (b) & 80C

There is one marked difference between the Section 80 EEA on the one hand, and Section 24 (b) and Section 80 C on the other. Balwant Jain, a Mumbai-based investment and tax expert says, “The beauty of Section 80EEA is that this deduction can be claimed while the property is under construction. You can only start claiming both Section 24 (b) and Section 80 C benefits from the year in which construction is completed and possession taken.”  

Don't confuse with Section 80 EE

Section 80EE was also introduced to offer an additional deduction of up to ~ 50,000 in a financial year on the interest component of the loan to first-time home loan buyers. However, it applies only to home loans sanctioned between April 1, 2016 and March 31, 2017.

Finally, those who want to avail of the Section 80 EEA benefit must act now. Jain says, “If you are planning to buy a house that fits into the Section 80 EEA eligibility criteria, get your home loan sanctioned before the deadline expires. You may take the disbursement later on.”

Key nuances of Section 80 EEA

• The amount of deduction available under this section is actual interest payment or Rs 1.5 lakh (whichever is lower)

• You can claim deduction under Section 24 and Section 80 EEA simultaneously

• The new ITR forms have the provision to choose Section 80 EEA for claiming deductions

• It is not available for purchasing a plot