20 SEPTEMBER, 2022

Section 80EE of the Internal Revenue Code allows first-time home buyers to avail tax benefits on the interest amount on their mortgages for up to Rs. 50,000.

As the first step, let us understand a little more about section 80EE

Section 80EE grants benefit first-time buyers for housing loan interest deduction under the following conditions

  • The cost of the property being purchased must not exceed Rs. 50 Lakhs.
  • Maximum loan amount considered for this deduction is Rs. 35 Lakhs.
  • Homebuyers can benefit from interest deduction under 80EE throughout their loan.

tenure.

  • The loan amount should be sanctioned between the financial year 2016-17.
  • The section provides for deduction in only the interest amounts of the loan.
  • The home loan must be approved by a financial institution or a housing finance organization.
  • The benefit does not apply in cases of purchasing commercial property.
  • The individual must not be a property owner on the day of availing the loan.

Let us understand who is eligible to seek benefits under section 80EE.

First-time home buyers can avail the benefits of section 80EE. Individuals applying for joint ownership can each avail the tax deduction benefits. Taxpayers must undertake a loan from a bank or a financial institution to seek the benefits that fall under 80EE.

However, the following entities are not eligible to seek benefits under this section:

            -Hindu Undivided Families (HUF)

            -Association of Persons (AOP)

            -Trusts

            -Companies

Moreover, the buyer does not have to reside in the property to claim the deduction.

What is the purpose of Section 80EE?

Section 80EE provides home loan tax benefits. The deductions, by the then finance minister P. Chidambaram, were initiated to support individuals with low-income to get some tax relief while applying for home loans. The section presents a yearly deduction of a maximum of Rs. 50,000 on the home loan interest.

Let us understand how individuals can claim tax deductions under section 80EE.

To avail benefits covered by section 80EE deduction, you can fill the allotted field in your IT returns specifying the interest paid in FY 2016-17. You would also be required to furnish documents from your lender stating the interest and principal amount of the loan along with the amount paid to date. Home buyers can follow the below steps to understand how they can seek home loan interest tax benefits.

Step I - Calculate how much interest payment is due on your home loan in the current financial year.

Step II - Section 24(b) of the Income Tax act, 1961 allows for the deduction of up to Rs. 2, 00, 000. Claim this deduction,

Step III - After claiming section 24(b), the remaining amount is eligible for tax deduction to a maximum value of Rs. 50, 000.

How is Section 80EE distinguishable from Section 80EEA?

Section 80EEA was introduced in FY 2019-20, which replaced section 80EE. Both section 80EE and 80EEA are applicable for first-time home buyers. Here is a description of the elements that distinguish Section 80EE from Section 80EEA.

Section 80EE

Section 80EEA

Pertinent to home loans granted in FY2013-14, FY 2014-15, FY 2016-17.

Pertinent to home loans granted in FY 2020-21, FY2021-22.

Maximum Deduction up to Rs. 50, 000 on the interest amount.

Maximum deduction up to Rs. 1, 50, 000 on the interest portion

The purchased property’s value must be less than Rs. 50 Lakhs. Also, the loan amount must be less than Rs. 35 Lakhs.

The purchased property’s carpet area must be less than or equal to 60 square meters for metro cities and 90 square meters for other towns and cities. In addition, the stamp duty paid must not exceed Rs. 45 Lakhs.

Let us understand how the key features of Section 80EE distinguish it from Section 80C and Section 24

Section 80C of the income tax act permits individuals to avail deductions up to Rs. 1.5 Lakhs per annum. Taxpayers can explore different investment options to seek benefits under 80C. Some of the investment options that can benefit from Section 80C are given below:

Public provident fund, Sukanya Samriddhi Yojana (SSY) account, Mutual funds (Equity Linked Saving Scheme), 5-year tax saving FDR, National Saving Certificate, Senior Citizen saving scheme, Unit Linked Insurance Plan (ULIP), National Pension Scheme (NPS).

Section 24 of the income tax act is named “Deductions from income from house property.” it qualifies homeowners for two kinds of tax deductions. (i) If the homeowner resides in the property, a standard deduction worth 30% of the net annual value does not get accounted for under the tax limit. (ii) Homeowners can claim deductions on the interest on home loan deduction, such as:

            -Exemptions on the interest amount of Rs. 2 Lakhs if the owner resides in the property.

            -If the loan is taken for the purchase or construction of the property, excluding renovation purposes, homeowners can seek deductions on the interest amount incurred during purchase or construction. This occurs in 5 equal installments, from the year the property is purchased or the construction completed.

            -Loans taken for renovation or reconstruction purposes are not applicable for deductions until the

renovation is completed.

Section 80EE vs. Section 80C vs. Section 24

Let us spend some time comparing and analyzing the different sections under the income tax act, how they can be used and how they differ.

Income Tax Section

Amount considered for Tax benefits

Deduction amount if the owner resides in the property

Deduction amount if the owner does not reside in the property

Section 80EE

Interest amount

50,000

50,000

Section 80C

Principal amount

1,50,000

1,50,000

Section 24

Interest amount

2,00,000

No limit

Taxpayers can claim numerous benefits in deductions while making investments and purchasing properties. First-time home buyers must have an intricate understanding of the benefits provided by the income tax act to seek deductions. It is recommended that homebuyers have a thorough understanding of the benefits before filing their income tax returns to reap maximum benefits.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.