What is Section 80EE?
The Constitution of India has authorized the Central government to impose tax on income other than agricultural income as defined in Section 10(1) of the Income Tax 1961 and thus tax is imposed on taxable income of everyone who are individuals, part of Hindu Undivided Families (HUFs), companies, firms, LLP, association of persons, body of individuals, local authorities and any other judicial person.
In India everyone dream of having one’s own house one day and works toward owning one someday however there is a difference between dreaming about a house and owing one because later one comes with its fair share of responsibilities and annual payment of house property tax tops the list. However to infuse some oxygen in the situation, Indian government takes special interest in encouraging its citizens to invest in a house and to ensure that it happens on a large scale, the government has introduced many schemes like Pradhan Mantri Jan Dhan Yojana in order to address the issues like affordability and accessibility.
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Tax Benefit on Home Loan
While you apply for a home loan, you must consider the tax benefit you can avail on the same and in order to understand the repayment of home loan and tax benefits on it, it can be divided into 2 factors such as:
- Repayment of the principal amount,
- Repayment of the Interest on Home Loan.
And since the repayment of home loan consists of 2 different components, the tax benefit on the home loan is governed by different sections of the Income Tax Act which can be claimed as tax deductions under separate sections while filing the Income tax return.
Section 80C and Section 80EE allows you to claim tax deductions on home loan however both are different from in their own way in terms of eligibility, maximum limit etc. Where Section 80EE of the Income Tax Act is exclusively for the home loan interest repayments on the loans sanctioned in the previous financial year, Section 80C of the Income Tax Act offers cumulative deduction on investments starting from small savings instruments to home loan interest repayment, also where Section 80EE allows for tax deductions of RS 1 Lakh for the current financial year and the balance deduction amount can be claimed in the next financial year, under Section 80C allows one time tax deductions up to Rs 1.5 lakhs per year.
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Section 80EE, an exclusive scheme was inserted by then Finance Minister Mr. P.Chidambaram in the national budget of FY 2013-14 and its intention was to provide first time home buyers deductions based on the interest payments of home loans and the maximum deduction that could be claimed back then was Rs 1 lakh and this tax benefit was available for two years i.e. FY 2013-14 and FY 2014-15. It was further re-introduced by Arun Jaitley in the year 2016 with a changed quantum of Rs 50,000.
Section 80EE does not specify and is not clear if you need to be a resident in order to claim the benefit so it can be understood that both Resident and Non-Resident Indians can claim the benefits. Also it is not stated clearly that whether to claim the deduction, the house should be self-occupied or it can be claimed as borrowers living in rented houses. Also if you have claimed deductions under this section i.e. Section 80EE then you are not eligible to claim the deductions under Section 24 for the same amount of interest, however if you are able to meet the conditions of both the sections 24 and 80EE then you can avail the benefits under the two by first exhausting the limit authorized under Section 24 and then claiming the additional ones under Section 80EE and therefore in this case, the deduction under Section 80EE is in addition to the limit of Rs 2,00,000 of Section 24.
In order to apply for a home loan, it is important for you to determine your eligibility which in turn depends on your repayment capacity which in turn is based on factors such as total monthly disposable/surplus income, monthly expenses, spouse’s income, assets and liabilities, stability of income etc. Also before a bank or a financial institution sanctions your loan, it has to make sure that you will be able to repay the same on time and thus higher the monthly disposable income, the higher the loan amount you are eligible to get because talking from a bank’s perspective, approx 50% of your monthly disposable or surplus income is available for the repayment. Also the tenure and the interest rate also play a vital role in getting a home loan and in order to get a home loan, it is important to have the required documents ready.
Eligibility criteria to claim deduction under Section 80EE
In order to claim deductions under Section 80EE, you must satisfy the below mentioned conditions:
- You must be an individual because Section 80EE is applicable on a per person basis rather than per property basis so in case you have bought your first house jointly with your spouse and you both are paying the installments equally then you both is entitled to claim the deductions under Section 80EE.
- This is the 1st house that you have ever purchased.
- Total value of the purchased house should be Rs 50 lakhs or less.
- Total loan amount should be Rs 35 lakhs or less and on the date of the sanction of loan, you must not have/own any other house in your name.
- The loan should be sanctioned by either a Housing Finance Company or by a Financial Institution.
- The house can either be self-occupied or non-self –occupied.
- Deduction can only be available on home loans sanctioned between 1st April 2016 and 31st March 2017, although dates of the same have been extended.
- In case you belong to Hindu Undivided Family (HUF), companies, trusts , association of persons etc then you cannot claim deductions under Section 80EE.
As mentioned above, Section 80EE allows you to claim deductions on the interest paid on the home loan of your first house and the deduction amount is interest payable or Rs 50,000,whichever is lesser and the deduction is available for the current assessment year and the subsequent ones till the loan is repaid. For example, if you have taken a loan to buy your first residential property and the interest payable on the loan amount is Rs 90,000. So, in this case you can claim deduction up to Rs 50,000 for the current financial year and the subsequent years till the loan is repaid.
Claiming Section 80EE Tax Deductions
You can claim the deductions under Section 80EE while filing your income tax return. Fill in the respective fields in your IT returns form specifying the interest amount paid in the year 2013-14 along with the supporting documents such as document from the lender stating the interest and principal amount of your home loan as well the amount paid till date.
For example, if you have got home loan of amount 20 lakhs in the FY 2014-15 for a property worth 35 lakhs and have paid an interest amount of RS 45,000 for the same financial year, then as per Section 80EE, you are eligible to claim the full amount as tax deduction and the remaining of Rs 55,000 of the deduction limit can be claimed in the next financial year i.e. FY 2015-16.
So, while anything and everything under the sun is changing faster than a blink of any eye, the fundamentals of human race haven’t changed much from its previous counterparts and even today, having a well paid job, a decent medical cover and a house that you own still tops the priority list of what we call as successful. However, while the fundamentals are the same and human race stepping another level of advancement, things have become a bit complicated especially when it comes to getting a home loan and it has become mandatory to understand the tax structure and understand benefits available in order to reduce your taxable income.’ Announced in the Budget 2016 by then Finance Minister Mr Arun Jaitley, Section 80EE of the Income Tax Act allows tax deduction up to Rs 50,000 for those who are buying home for the first time ever, however in order to avail this deduction the loan amount should not be more than 35 lakhs whereas the property value should not be more than 50 lakhs. Deductions or tax rebate under Section 80EE are as per person and not as per property.
Also the deductions for the first time home buyers under Section 80EE will be applicable under below mentioned conditions such as: