It is a dream to own a house and when it really comes to purchasing one, there are scores of tax incentives and schemes to look into from time to time. There several more ebing introduced to encourage more people to get their own houses. In budget 2019, section 80EEA was introduced as a vision to provide benefits of payment of interest on affordable housing loans. Let’s check out what section 80EEA of the income tax of India stands for.
What is Section 80EEA?
The Indian government in 2014 launched ‘Housing for All by 2022’ programme with the objective that all will be houses within the year 2022. Along with this programme, they also launched the Pradhan Mantri Awas Yojana (PMAY) that helps in incentivising home purchases via subsidiaries under the centre.
Section 80EEA, intriuduced by finance miniter Nirmala Sitharaman, aimed to boost teh ‘Housing for All by 2022’ programme by waiving payable tax on first time purchase a property.
Section 80EEA covers the deduction of interest on home loans subject to a few conditions. The maximum deduction of taxes available under section 80EEA is ₹1,50,000 over and above the tax deductions available in section 24. This deduction in payable tax is for the financial year 2019-2020, specifically from 1st April, 2019 to 31st March, 2020.
What is a Deduction Under Section 80EEA?
Section 80EEA was launched in the 2019 budget to help first-time home buyers in saving an additional ₹1.50 lakhs each year against the interests of the home laon they took under the consition that the property is “affordable”.
- Under section 24 (b), this deductions over and above the 2 lakh deduction limit.
- This deduction is available for housing nits worth up to ₹45 lakhs.
- The “affpordability” of the house is determined by the carpet area of the property. For a metropolitan city, the carpet area must be within 60 sq metres or 645 sq ft. For iother cities, the carpet area is limited to 90 sq metres or 968 sq ft.
Section 88EEA of Income Tax Act: Deduction Amount
Let’s assume A has taken a home loan. This table will give you an idea of how much deductions A can avail under section 80EEA:
Total Interest | Loan taken during | Deduction using section 80EEA |
₹4 lakh | 2016-2017 | nil |
₹3 lakh | 2019-2020 | ₹1 lakh |
₹5 lakh | 2019-2020 | ₹1.5 lakh |
₹3 lakh | 2018-2019 | nil |
Section 80EEA of Income Tax Act: Eligibility Criteria to Avail Deductions
Tax deductions under section 80EEA is subject to certain conditions:
- The assesse should not own any resdiendtial property on the date of the sanction of the loan.
- The assesse should not claim any tax deductions under the section 80EE.
- The laon must be sanctioned between 1st April 2019 to 31st March 2020.
- The laon should ave been taken from a “financial institution”.
- The stamp duty value of the residential property must be within ₹45 lakh.
- The carpet area of the property must not exceed 60 square metres in metropolitan cities such as Kolkata, Hyderabad, Faridabad, Gurgaon, Ghaziabad, 12 Greater Noida, Noida, Delhi, Chennai, Bangalore, and Mumbai).
- For other cities, the carpet area needs to be 90 square mtres.
Difference Between Section 80EE and Section 80EEA of the Income Tax Act
Section 80EEA | Section 80EE |
There exists no limit on the land’s value. | Value of land must be within ₹35 lakh. |
The maximum available tax deduction is ₹1.5 lakh. | The maximum available tax deduction is ₹50,000. |
The loan needs to be sanctioned during 1st April, 2019 to 31st March, 2020. | Loan needs to be sanctioned between 1st April, 2016 to 31st March, 2017. |
The stamp suty value of the property must be up to ₹45 lakh. | The value of the property must be ₹50 lakh or less. |
Difference Between Section 24 and 80EEA of the Income Tax Act
Section 80EEA | Section 24 |
No requirement of possession (as sson as the interest payment is started, exemption can be claimed) | You need to have possession of a property. |
Allows loans taken from financial institution and/or banks only. | For exempting section 24, loans taken from relatives or friends with interest being paid to them is allowed. |
The maximum available tax deduction is ₹1.5 lakh. | The maximum available tax deduction is ₹2 lakh. |
Conditions to clain tax deduction under section 80EEA:
| No such conditions exist. |
How to Calculate Tax Under Section 80EEA?
Calculating Tax Without Investing in Property
Say the annual salary package of A is ₹15 lakh.
The standard tax deduction for Indians = ₹40,000
Therefore, the total taxable income for A = ₹15 lakh – ₹40,000 = ₹14.60 lakh
Now, we can say that A falls in the ₹12.5 lakhs – ₹15 lakh tax bracket.
Therefore, the highest rate at which A will be taxed = 30%
Here’s how the ₹14.60 lakh will be split for tax deductions:
- ₹2.5 lakhs at 0% = 0
- ₹2.5 lakh at 5% = ₹12,500
- ₹5 lakh at 20% = ₹1 lakh
- ₹4.6 lakh at 30% = ₹1.38 lakh
- cess at 4% = ₹10,020
Therefore, the total becomes = ₹2,60, 520
Calculating Tax While Investing in a Property
Suppose, A invests in a maiden property so that his tax outgo lowers. The property A bought is ₹45 lakhs. A takes 80% of property value, i.e., ₹36 lakh as home loan at an interest rate of 8%.
Therefore. EMI to be paid will be = ₹34,403
Total interest in 15 years of tenure = ₹25,92,624
Total payable in 15 years of tenure = ₹61,90,624
Under section 80C, A can make ₹1,29,522 from his income tax-free.
Under section 24, A can claim ₹2 lakh as tax deduction against the paid interest.
Under section 80EEA, A can claim the remaining ₹82,319 as tax deductions (overall limit is ₹1.5 lakh).
Therefore, the total deduction will be = ₹4,12,841
After A applies the standard deduction of ₹40,000,
The total taxable income of A will be = ₹15 lakh – ₹40,000 = ₹14.60 lakh
After all of the above tax deductions under the various section,
The total taxable amount of A will be = ₹14,60,000 – ₹4,12,841 = ₹10,47,159
Here is the split of A’s income to calculate tax:
- ₹2.5 lakh at 0% = 0
- ₹2.5 lakh at 5% = ₹12,500
- ₹5 lakh at 20% = ₹1 lakh
- ₹47,159 at 30% = ₹14,148
- Cess at 4% = ₹5,066
Therefore total tax outgo = ₹1,31,714
Now total savings as against the earlier outgo for tax when not investing in any property:
₹2,60,520 – ₹1,31,714 = ₹1,28,806
The Bottom Line: Facts About Section 80EEA of the Income Tax Act
People qualified for the rebate can claim tax deductions throughout their entire term of repaymenet of home loan even though deductions under section 80EEA is available for home loans asnctioned till march 2020. Under the Pradhan Mantri Awas Yojana, a single earning member of the family will be deemed a separate household when calculating tax deductions. A financially independent unmarried buyer is also considered a separate household and can claim tax deductions under section 80EEA for his first purchase of property.
