Additional 1.5 lakh deduction on re-paying your Home Loan interest but are you eligible for it?? – Section 80EEA

written by Income tax Expert | September 17, 2019

Finance Minister Nirmala Sitharaman unveiled a budget on 5th July 2019, the first since the Bharatiya Janata Party led by Prime Minister Narendra Modi returned for a second term in power.

During the budget she also announced about giving additional 1.5 lakh deduction to common man on purchasing their house and everyone was excited about it but there are some terms and conditions attached to such deduction and in this article we are going to discuss them.

This is not the first time that such additional deduction has been offered by government on paying home loan, such deduction was first introduced by Budget 2013 as section 80EE and time and again such deduction has been amended in every budget and last it was updated in Budget 2017 after which in Budget 2019 they have introduced a new section i.e. 80EEA to provide this deduction to citizens.

 

Section 80EEA: The bare act language is as under:

“ (1) In computing the total income of an assessee, being an individual not eligible to claim deduction under section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—

            (i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

            (ii) the stamp duty value of residential house property does not exceed forty-five lakh rupees;

            (iii) the assessee does not own any residential house property on the date of sanction of loan.

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

            (a) the expression “financial institution” shall have the meaning assigned to it in clause (a) of sub-section (5) of section 80EE;

            (b) the expression “stamp duty value” means value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.”

 

Interpretation of Section 80EEA in simple words along with it’s conditions are as under:

This section is basically for claiming deduction of interest on home loan taken by someone for the purpose of acquisition of residential house property from a financial institution.

The deduction under this section shall be allowed upto Rs. 1.5 lakh during a Financial year over and above the 2 lakh deduction allowed u/s 24 of the Income tax act.

The loan must be sanctioned between 01.04.2019 to 31.03.2020.

The stamp duty value of the property must not exceed Rs. 45 lakh. (Which means actual sale consideration of the house can be more and you can take loan for more amount).

The assessee should not own any residential house at the time of sanction of loan. (i.e. He should be a first time home owner. Do you agree?)

Also deduction allowed under this section will not be allowed under any other section i.e. basically interest deduction allowed under this section will not be allowed under section 24.

 

Now let’s see what’s the difference between deduction u/s 24 and section 80EE and section 80EEA:

Conditions Section 24 Section 80EE Section 80EEA
No. of houses owned No limit 1 At the time of sanction of loan. 1 At the time of sanction of loan.
Maximum amount allowed as deduction of interest Rs. 2 lakh for self occupied. No limit for rented property Rs. 50,000 during a year Rs. 1.5 lakh during a year
Loan sanctioned by Anyone Financial institution or housing finance company Financial institution
Amount of loan and house eligible for deduction No limit Rs. 35 lakh and Rs. 50 lakh respectively No limit and Rs. 45 lakh
When should the loan be sanctioned No date limit Between 01.04.2016 to 31.03.2017 Between 01.04.2019 to 31.03.2020
From when can you claim this deduction You can claim deduction after the house is acquired or constructed interest paid before this can be claimed in 5 years after house is acquired or constructed. There is no such limit you can claim deduction from the year in which you have taken the loan. There is no such limit you can claim deduction from the year in which you have taken the loan.

 

Let’s understand this with some examples:

  1. A holds a property and wants to buy another property whose stamp value is Rs. 45 lakh and goes for a loan on 01.08.2019 will he be eligible to claim deduction u/s 80EEA. The answer is no but he may claim deduction u/s 24 if the limit is not exhausted.
  2. A buys a property for 45 lakh and takes a loan from his friend for Rs. 30 lakh at 10% rate of interest will he be eligible to claim deduction u/s 80EEA since this is his first house. The answer is no since the condition to claim deduction u/s 80EEA is that loan must be sanction by financial institution therefore he can only claim deduction of such interest paid u/s 24 upto Rs. 2 lakh.
  3. A buys a property whose value as per stamp valuation authority is Rs. 45 lakh but Mr. buys it for Rs. 48 lakh and extra 3 lakh has been paid for parking and Mr. A takes loan for such house from bank. Now can he claim deduction of such interest u/s 80EEA. The answer would be yes as in the section it has been mentioned that it’s stamp duty value should be Rs. 45 lakh and there is no limit on it’s actual purchase value so Mr. A would be eligible for such deduction.
  4. Mr. A holds a property on 01.04.2019 and on 01.06.2019 he buys another property for Rs. 45 lakh and applies for loan on such property on 10.07.2019 and on 01.07.2019 he gifts his first property to his son. Now will he be eligible for claiming deduction u/s 80EEA. The answer would be Yes as he must not be holding any house property at the time of sanction of loan and since he transferred his second property before sanction of loan he can claim deduction u/s 80EEA.

 

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