Home Loan Tax Benefits under Section 80 EEA in Budget 2019– Rs 1.5 Lakh Additional Tax Deduction on Affordable Housing Loans

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Eligibility for Tax Deduction

The basic eligibilities for the tax deductions can be listed as below,

• The housing loan should be sanctioned within 31st March 2020.
• The property should fall into the affordable housing property category.
• Purpose or productivity (self-owned/rented).

What is Affordable Housing Property?

The description of an affordable housing property is based on the valuation and the carpet area of the house with respect to localities as explained below,

• Stamp Duty Value is up to Rs 45 Lakh.
• In metropolitan cities the carpet area of up to 60 sq m (645 sq ft)
• In non-metropolitan cities the carpet area of up to 90 sq m (928 sq ft)

[Note: Metropolitan cities are Chennai, Bengaluru, Hyderabad, Mumbai, Kolkata and Delhi NCR.]

Additional tax deduction of 1.5 Lakh

Previously, the income tax law provides a maximum deduction of Rs 2 Lakh for the interest paid on self-occupied affordable housing property. After the Union budget – 2019, the government has increased the tax deduction up to Rs 1.5 Lakh (over and above the existing 2 Lakh) for interest paid.

So, now an individual can get up to Rs 3.5 Lakh of interest deduction on the purchase of an affordable housing property loan taken before 31st March 2020.

It is highly beneficial for first-time house owners from the middle-class economy. It is also going to uplift the real-estate market in the country which subsequently will raise the number of housing loans and borrowers.

Self-occupied house – Tax deduction

The tax deduction is under categorized under sections – 80C, 24B & 80EE based on certain factors which we will see in detail below,

Tax deduction under section 80(C)

Under section 80C of Income Tax Act, you can claim up to Rs 1.5 Lakh a year as a tax deduction in the principal repayment.

Tax deduction under section 24(B)

Under section 24B of Income Tax Act, you can claim up to Rs 2 Lakh a year as a tax deduction in the loan interest repayment.

Tax deduction under section 80EEA

Under section 80EE of Income Tax Act, you can claim up to Rs 1.5 Lakh a year in the FY 2019-2020, which is over and above the tax deductions by 80C and 24B. It is only when the below conditions are satisfied,

• The home loan should be sanctioned between 1st April 2019 and 31st March 2020.
• The taxpayer should not own any other property on the date of loan sanction.
• The taxpayer can avail the benefits from 1st April 2020.

Let-out house – Tax deduction

According to the government, the tax benefits for a self-occupied property cannot be used in a let-out property.

In the FY budget 2017-2018, the loss from house property is limited to Rs 2 Lakh per year for housing property that is deemed to be a let-out house. This will potentially reduce the tax benefit that an individual can get from the interest paid in case of renting out the house.

You can refer the basic formula mentioned below to calculate the net income or loss from your property.

Deduction: Municipal/Corporation taxes paid by the owner = Net Asset Value (Gross Annual Value – Property tax)

Deduction: 30% standard deduction on NAV

Deduction: Interest on home loan (u/s 24(B))

Deduction: interest on home loan (u/s 80EE)

The final verse

Overall the additional tax deduction on affordable housing property has a positive benefit for individuals who are planning to buy their little house on loan.

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