What is Section 80EE of the Income Tax Act?

Home loans are long-term commitments that often extend for 10 to 20 years or more. While the repayments may seem unending, the tax benefits offered under specific provisions of the Income Tax Act, 1961, can ease the financial burden to a great extent. One such provision is section 80EE, which offers home loan tax benefits.

Want to know more about what this section entails and who can avail of its benefits? Read this article to find the answers to these questions and more.

What is Section 80EE of the Income Tax Act?

Section 80EE of the Income Tax Act is a provision that offers tax deductions on the interest paid on home loans. As per this section, taxpayers who have availed of an eligible home loan can claim a deduction of up to ₹50,000 for the interest portion of the loan repaid in any given financial year. This benefit can be availed till the loan is fully repaid.

This section of the Income Tax Act was brought into effect in FY14. Initially, the home loan tax benefit in this provision was made available only for two financial years — namely, FY15 and FY15. However, it was again introduced in FY17.

While the common deductions under section 80C and section 24(b) are more well-known, not many taxpayers are aware of this home loan tax benefit. Furthermore, since it is subject to several conditions, not all taxpayers may be eligible for the benefit under section 80EE of the Income Tax Act. So, let us discuss the eligibility criteria for this tax benefit.

Who is Eligible for Tax Benefits Under Section 80EE?

To be eligible for the deduction under section 80EE, taxpayers should meet the following criteria:

Individual Only: Only individual taxpayers can make use of the section 80EE tax provision. This means Hindu Undivided Families (HUFs), companies, Associations of Persons (AOPs) etc. cannot claim this deduction.
First-Time Homebuyer: The individual taxpayer should be a first-time homebuyer. Any taxpayer who has already purchased a home and availed of a housing loan for this purpose will not be entitled to the benefits of section 80EE.
No Property Ownership: To claim the 80EE home loan tax benefit, the taxpayer should not own any other house property at the time of availing the loan under this section of the Income Tax Act.

Key Features of Home Loan Tax Benefits Under Section 80EE

To make the most of this tax deduction, you need to know the key features of section 80EE, which include the following:

Deduction Limit: The maximum amount of deduction allowed under this section is ₹50,000. This deduction is in addition to the benefits of section 24(b).
New vs Old Tax Regime: Section 80EE of the Income Tax Act can only be claimed under the old tax regime. Taxpayers opting for the new regime cannot use this benefit.
Interest vs Principal Deduction: Only the interest portion of eligible home loans can be deducted u/s 80EE. The principal repaid during the financial year is not deductible.

Conditions to Claim Home Loan Tax Benefits Under Section 80EE

To claim the tax deduction under section 80EE, the following conditions need to be fulfilled.

Value of the House Property: The value of the residential property for which the loan is taken should not exceed ₹50 lakh.
Loan Amount: The loan taken for the property should not exceed ₹35 lakh. Loans higher than this amount do not qualify for the tax benefit under section 80EE.
Type of Loan: The loan should have been offered by a housing finance company or a financial institution. Loans from other parties do not qualify for this deduction.
Date of Loan Sanction: The loan should have been taken in FY17, i.e. between April 1, 2016 and March 31, 2017.

Section 80EE vs Section 24(b) vs Section 80EEA

Homebuyers may often be confused about the applicability of sections 80EE, 80EEA and 24(b). The common aspect of all these sections is that they all offer tax benefits on home loans. However, there are some important points to note about these provisions and how they overlap.

Section 80EE and Section 24(b)

You can claim the home loan tax benefits under both these sections if you are eligible. The deduction of ₹50,000 under section 80EE of the Income Tax Act is in addition to the deduction of ₹2,00,000 allowed under section 24(b). So, if the interest you pay on an eligible home loan exceeds ₹2,00,000, you can make use of section 80EE.

Section 80EE and Section 80EEA

Section 80EEA is another provision of the Income Tax Act that offers tax deductions on home loan interest. The maximum deduction permitted under this section is ₹1,50,000. It is only available for first-time buyers who have not claimed the deduction u/s 80EE. So, if you claim the tax benefits under section 80EE, you cannot avail of the deduction under section 80EEA.

An Example of the Deduction Under Section 80EE

Say you bought a home for the first time in FY17 and wanted to purchase a house property valued at ₹40 lakh. For this purpose, assume you have borrowed ₹30 lakh via a home loan from a bank. The terms of the loan include a rate of 8.75% per annum and a repayment tenure of 30 years.

The interest due to be paid in the first year amounts to ₹2,61,649. So, you can claim ₹2,00,000 as a deduction under section 24(b) and ₹50,000 as a deduction under section 80EE. This means you can deduct ₹2,50,000 of the total interest paid that year.

Conclusion

Section 80EE is one of the many provisions of the Income Tax Act that offer tax benefits on home loan repayments. So, if you want to purchase or construct a house property and plan to borrow funds through a housing loan, make sure you get to know the different tax benefits available on home loan EMIs. This way, you can improve your tax planning strategy and find which home loan tax benefits you are eligible for.