Section 80EE vs. Section 80EEA

Under Section 80EE of the Income Tax Act, a tax break for home loan interest is available. This benefit is specifically for first-time homebuyers. To qualify, the property must be valued up to ₹50 lakhs, and the loan amount should not exceed ₹35 lakhs.

Under the 80EE deduction, an individual may claim a deduction of up to ₹50,000 in a financial year. The tax benefit can be claimed yearly until the home loan is fully repaid. This makes Section 80EE a valuable option for reducing the economic burden of owning a home.

Let us consider an example where Mr. Kabir Khan, a first-time homebuyer in Pune, borrowed ₹30,00,000 in May 2017 to acquire a property valued at ₹40,00,000. Suppose he will pay ₹2,50,000 in interest on his home loan for the fiscal year 2023–2024.

Besides the deduction of ₹2,00,000 permitted under Section 24, Mr. Kabir is eligible to claim a deduction of up to ₹50,000 as per Section 80EE since he fulfils all the criteria of the section. His tax liability will be reduced due to the ₹2,50,000 decrease in his taxable income.

Section 80EE: Eligibility Criteria

To be eligible to claim deductions under Section 80EE, a taxpayer must meet the following criteria:

• Section 80EE allows only individual taxpayers to claim deductions for properties purchased on their own or jointly. If the property is purchased jointly, each co-owner can claim the deduction separately, provided both are making loan repayments. For instance, a husband and wife can each claim the deduction if they jointly own the property and pay the loan.

• Associations of Persons (AOPs), Hindu Undivided Families (HUFs), trusts, corporations and similar entities are not eligible for the tax benefits under Section 80EE, which is restricted to individual taxpayers.

• Only first-time homebuyers can claim tax benefits under Section 80EE. To qualify, the individual must have taken a home loan from a financial institution to purchase their first residential property. This provision is designed to assist new buyers by reducing their taxable income, thereby making home ownership more affordable for those entering the property market for the first time.

• Section 80EE applies to individuals rather than specific properties. It provides tax benefits based on the taxpayer's eligibility and loan details, not individual property characteristics.

• To claim the deduction under Section 80EE, the taxpayer does not need to reside in the property for which they claim the benefit. They are still eligible for this tax advantage even if they rent another residence while repaying the home loan.

** Section 80EE: Claiming Deduction**

To claim a Section 80EE deduction when filing taxes, a taxpayer should follow these steps to determine the maximum allowable amount: verify eligibility, calculate the total interest paid and apply the deduction limits.

• Calculate the total interest paid on the house loan during the fiscal year by reviewing loan statements and payment records.

• After calculating the total interest paid on the home loan, you may claim a deduction of up to ₹2,00,000 under Section 24 of the 1961 Income Tax Act to reduce taxable income.

• For any remaining interest amount after claiming Section 24 benefits, you can use Section 80EE to claim an extra deduction of up to ₹50,000.

Section 80EEA was launched in the 2019 Union Budget to provide first-time homebuyers with enhanced tax incentives. Thanks to this provision, individuals can claim a deduction of a maximum of ₹1,50,000 from their home loan interest when purchasing a residential property.

The 80EEA deduction is offered in addition to the existing ₹2 lakhs tax deduction permitted by Section 24 of the Income Tax Act.

For instance, let us say that Mr. Shekhar Verma, a first-time homeowner in Noida, took out a home loan of ₹50,00,000 at an interest rate of 8%. In this case, the total interest payable for the financial year would be ₹4,00,000.

According to the Income Tax Act, Mr. Verma can claim a deduction of ₹2,00,000 under Section 24 and an additional ₹1,50,000 under Section 80EEA, bringing the total deduction to ₹3,50,000. This results in a significant reduction in his taxable income and overall tax liabilities.

Section 80EEA: Eligibility Criteria

• Section 80EEA allows eligible assessees to claim a tax deduction on home loan interest for first-time homebuyers meeting specific criteria.

• Only individual borrowers, under Section 80EEA, are eligible to claim deductions on home loan interest for properties acquired either individually or jointly with others. This benefit is not available to entities.

• Section 80EEA does not extend its benefits to AOPs (Associations of Persons), HUFs (Hindu Undivided Families), trusts or businesses. Only individual taxpayers can claim deductions under this section.

• Under Section 80EEA, taxpayers do not need to reside in the property for which they claim the deduction. This means they can still benefit from the deduction even if they rent elsewhere.

** Section 80EEA: Claiming Deduction**

The conditions for claiming a deduction under Section 80EEA involve meeting specific eligibility criteria, such as being a first-time homebuyer.

• Section 80EEA provides deductions exclusively to first-time homebuyers. This means that at the time the loan is sanctioned, the taxpayer must not own any residential property. This rule ensures the benefit targets individuals new to homeownership.

• Section 80EEA permits a deduction of up to ₹1,50,000 from the net taxable income. This deduction applies to interest on home loans for qualifying first-time homebuyers.

• For properties located in major metropolitan areas such as Delhi NCR (including Delhi, Greater Noida, Noida, Gurgaon, Ghaziabad, Faridabad and Gurgaon), Kolkata, Hyderabad, Mumbai, Bangalore or Chennai, the carpet area must not exceed 60 square metres (645 square feet) to qualify for the deduction under Section 80EEA. This restriction ensures the benefit targets properties within a specific size range.

• For properties located outside major metropolitan areas, the carpet area must be greater than 90 square metres (968 square feet) to qualify for the deduction under Section 80EEA. It ensures a larger property size in non-metro locations.

• The stamp duty on the property must be ₹45,00,000 or less to qualify for the Section 80EEA deduction.

• To qualify for the deduction under Section 80EEA, the housing loan must be sanctioned during the financial years 2019-2020 or 2020-2021. Loans taken in other years before these do not qualify.

Although both Section 80EE and Section 80EEA offer tax benefits for home loans, they differ in key aspects. The following table outlines the main distinctions between these two provisions for clarity:

While Sections 80EE and 80EEA provide tax advantages to new homeowners, if you intend to claim your home loan benefits, then you should be familiar with a few key terms before filing for the tax deductions under these sections.

These terms will be prominently used in the process of claiming deductions. So, listed below are a few of these terms:**

Carpet Area: Carpet area refers to the total usable area within the walls of a house, excluding common spaces like balconies, lifts and stairs. It is the actual area where occupants can place furniture and use the living space effectively.

Stamp Duty Value: The government assigns a property a stamp duty value to calculate stamp duty during the registration process. This value is used to determine the tax payable on the property transaction.

LTV (Loan to Value) Ratio: The Loan-to-Value (LTV) ratio measures the proportion of a loan amount relative to the property's value. For instance, if a lender approves a ₹50,00,000 loan for a property worth ₹70,00,000, the LTV ratio is 71.42%. It indicates the loan's coverage of the property’s value.

Annual Value: Annual value is the potential rental income a property may generate over a year, as assessed by the government. This value determines property tax and eligibility for certain tax deductions related to rental income.

Gross Total Income: Gross total income refers to the complete income earned by an individual from all sources, including salary, investments, business earnings and other sources, before any deductions or exemptions are applied. It forms the foundation for calculating taxable income.

Financial Institution: In this context, a financial institution refers primarily to lenders regulated under the Banking Regulation Act. This includes entities like banks and credit unions that provide loans, deposits and financial services while adhering to specific regulatory guidelines.

Understanding the differences between Section 80EE and 80EEA is important for first-time homebuyers seeking to maximise their tax benefits. By carefully considering the eligibility criteria and deduction limits, you can significantly reduce your taxable income and enjoy a more affordable homeownership experience.

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