Deductions under Section 80EEA of the Income Tax Act will only be applicable to an individual.
Section 80EEA of the Income Tax Act offers a deduction for interest payments up to INR 1.5 Lakhs. This deduction is over and above the deduction of INR 2 Lakhs offered for interest payments through Section 24 of the Income Tax Act. Therefore, if a taxpayer meets all the necessary conditions, they can avail a total deduction of INR 3.5 Lakhs for interest on a home loan taken to buy an affordable home.
Conditions to Claim Deductions
Section 80EEA is introduced to extend the benefits offered under Section 80EE in terms of low-cost housing. The following conditions have to be fulfiled in order to claim deductions up to INR 1.5 Lakhs under Section 80EEA of the Income Tax Act.
- The home loan must be taken from a Financial Institution or a Housing Finance Company.
- It should be noted that the term Financial Institution refers to a banking company to which the Banking Regulations Act of 1949 is applicable. It may also refer to a banking institution that is referred to in Section 51 of the Act or a housing finance company. The term housing finance company refers to a public company formed and registered in India with its main object as carrying on a business of providing long-term finances for the construction or purchase of houses in the country for residential purposes.
- The stamp duty value of a house property under this Section cannot cross the threshold of INR 45 Lakhs.
- The concerned individual taxpayer should not be eligible to claim any deductions under the existing Section 80EE of the Income Tax Act.
- A maximum amount of INR 1.5 Lakhs will only be permissible as a deduction for AY 2020-21 and subsequent assessment years.
- A deduction that is claimed under Section 80EEA will not be allowed under any other provision of the Income Tax Act for the same year or any other assessment years.
- The concerned taxpayer must be a first-time homebuyer. It is essential to note that the taxpayer should not own any other residential house properties on the date of sanctioning the home loan.
- The carpet area of a particular house property must not exceed 60 Sq. Mt. or 645 Sq. Ft. in metropolitan cities such as the following:
- Delhi National Capital Region (however, it is limited to Delhi, Noida, Greater Noida, Gurgaon, Ghaziabad, Faridabad)
- Mumbai (the whole of Mumbai Metropolitan Region)
- The carpet area of a particular house property must not exceed 90 Sq. Mt. or 968 Sq. Ft. in any other city or town.
- Deductions under Section 80EEA will be applicable to affordable real estate projects that are sanctioned after the 1st of April, 2019 but before the 31st of March, 2020.
Section 80EEA mandates the acquisition of a residential house. However, it does not cover the construction of a residential house. One of the main conditions of the Section is that the assessee should not own any residential house properties on the date of sanctioning the home loan. However, if the taxpayer owns a residential property after the loan for affordable housing was sanctioned, the taxpayer is not to be disqualified. Therefore, if an assessee is fortunate enough to own yet another property after the sanction of the loan, the conditions of the Section stands satisfied.
Section 24 and Section 80EEA
Homeowners may claim a deduction for interest payments up to INR 2 Lakhs on their home loan under Section 24 of the Income Tax Act if the owner or their family resides in the said house property. The deduction up to INR 2 Lakhs is applicable even when the house property is vacant. If the taxpayer chooses to rent out the property, the entire home loan interest is allowed as a deduction.
If a taxpayer is capable of satisfying the necessary conditions of Section 24 as well as Section 80EEA of the Income Tax Act, then they may claim the benefits of deductions under both the sections.