Section 80EE Of Income Tax And Deductions On Home Loan

Getting your first salary will be one of the most cherished days of your life. Isn't the excitement of getting your first pay cheque something unique? You feel like you are on top of the world and are eager to fulfil each of your aspirations one at a time. When you talk about dreams, one of the most common dreams for many would be to buy a house. Take Suman as an example. He is an engineer who recently got a well-paying job. His aim was to purchase a home as soon as he began making money. Thus, he started this wonderful journey by taking out a home loan.

However, you may become confused in a sea of intricate regulations as you delve more into the subject of taxes and finance. For those who are taking out home loans, Section 80EE of the Income Tax Act is very helpful. It provides some tax relief to aid in improved money management. What makes this meaningful to you? You might save some money and enjoy a smoother home loan application process if you are aware of Section 80EE.

Want to know more about it? Find out how you can benefit from this section by reading on!
 

What Is Section 80EE Of The Income Tax Act?

First-time homebuyers can take advantage of a great tax discount under Section 80EE of the Income Tax Act. It enables you to claim tax deductions on the interest you pay on the home loan. In particular, you are eligible for a deduction of up to Rs. 50,000 every fiscal year. The best part? This tax relief is something you may take advantage of every year until your house loan is paid off in full.
 

Features And Eligibility Criteria Of The 80EE Deduction

Let’s break it down for you -

Purpose Of The Deduction Under Section 80EE

Section 80EE of the Income Tax Act is intended to provide people with significant tax advantages. It permits you to deduct the interest paid on a loan received from a financial institution for residential property up to a yearly maximum of Rs.50,000. By reducing their taxable income, this deduction primarily attempts to increase first-time purchasers' opportunity for homeownership. Even better, until your loan is entirely repaid, you are eligible to receive this benefit each fiscal year.
 

Conditions To Be Met For Claiming Deduction

You must fulfil the following requirements in order to be eligible for the deduction under Section 80EE of the Income Tax Act -

• The maximum value of the residential property you purchase should be Rs. 50 lakhs, and the total amount of your loan cannot be more than Rs. 35 lakhs.
• A reputable home finance firm or banking institution must approve your loan.
• For the duration that you are repaying the loan, you are eligible to claim this deduction.
• You should not own any other residential property at the time your loan is approved.
   

How Can You Claim Tax Deductions Under Section 80ee Of The Income Tax Act?

Using Section 80EE of the Income Tax Act, you can claim your deduction as follows -

• Get Your Documents Ready:
  Gather the essential documentation, including the property sale deed, loan repayment statements that reflect the interest paid, and the letter of sanction for your home loan.
   
• File Your Tax Return:
  When you are ready to submit your income tax return, use the relevant ITR form, which is usually ITR-2 or ITR-3.
   
• Input Loan Details:
  Make sure you accurately complete the relevant area of the ITR form with the facts of your home loan interest payments.
   
• Stay Prepared:
  Keep all supporting documentation available in case the tax authorities ask to see it. This will help you stay prepared.
   

How To Claim House Loan Interest In ITR?

You can follow this simple procedure -

1. Collect All Required Loan Records
   Arrange all of the necessary paperwork for your home financing first. This contains a complete statement that lists the principal and interest amounts paid throughout the financial year, your loan agreement, and the interest certificate issued by your lender. It is essential to have these records on hand for a precise and efficient filing procedure.
    
2. Find Out Which Are Eligible Tax Deductions
   You can deduct a sum of up to Rs. 2 lakh in interest that you paid on a self-occupied property each year under Section 24(b) of the Income Tax Act. There is an additional benefit if your property is rented out. The deduction for interest payments will not have a cap. To optimise your tax savings, make sure you appropriately compute and claim these deductions.
    
3. Get The Proper Interest Documents
   Verify that you have all the right documents in your hands. Your Form 16 will include information on the interest you paid on your home loan if you are a salaried individual. However, if you own your own business or are self-employed, you will need to ask your lender for an interest certificate. These records are crucial since they contain the numbers you require for your ITR.
    
4. Choose And Complete The Correct ITR Form
   It's now time to choose the appropriate ITR form according to your sources of income. ITR-1 or ITR-2 will be the case for the majority of people. After selecting the relevant form, carefully enter your financial and personal information on it. You can make sure that your return is accurate by taking the time to do this step.
    
5. Report The Interest Paid In The Relevant Section
   In your ITR form, you must enter the interest amount. Find the subsection under Section 24(b) that deals with housing loan interest deductions. Make sure the interest you paid during the fiscal year matches the amounts on your Form 16 or interest certificate when entering the amount. To optimise your tax benefits and accurately claim your deduction, this step is essential.
    
6. Pre-Construction Interest Claim For Properties Under Construction
   You are eligible for a significant bonus if you have taken out a loan for a property that is still under development. Pre-construction interest is allowable to be claimed in your ITR; however, it must be paid in five equal payments. Once your property is completed, you can begin to claim this deduction in that year.
    
7. Utilising The E-Filing Portal, Submit Your ITR
   The next step is to confirm every detail. Verify that all of the numbers are correct and that each section is finished. When you are prepared, use the Income Tax Department's electronic filing system to submit your ITR.
    
8. Preserve All Necessary Documents
   Lastly, it is imperative that you keep all of your supporting documentation. Your loan statements, interest certificates, and certificates of property possession are all included in this. Keeping these records on file is crucial for your records and will come in handy if you ever have to face an audit.
    

Categories Of Groups Or Persons Who Cannot Access Tax Benefits Under Section 80EE

It's critical to understand who is not qualified for the tax benefits provided under Section 80EE of the Income Tax Act. These deductions do not apply to trusts, Hindu Undivided Families (HUFs), or Associations of Persons (AOPs). Furthermore, you cannot claim the deduction if your spouse is the only owner of the property in question unless they are also a co-borrower or co-owner.
 

Difference Between Section 80EE And Section 24

Listed below are a few of the differentiations between the two sections -

• What Do They offer?
  • Section 80EE: This section, which is specifically designed for first-time homebuyers, provides a deduction from taxes on the interest paid on your mortgage. The benefit? A deduction of up to Rs. 50,000 is allowed for each fiscal year.
  • Section 24(b): In contrast, Section 24(b) is broader in scope, permitting deductions for both self-occupied and rental properties' home loan interest. The annual deduction for self-occupied residences is limited to Rs. 2 lakh. However, there is no upper limit to the amount you can deduct when dealing with rental properties.
• Who Can Claim?
  • Section 80EE: This benefit is only available to first-time homebuyers who fulfil certain requirements, like having a maximum loan amount and property value restriction.
  • Section 24(b): This provision, which is more widely applicable, is accessible to any owner of residential property, regardless of whether it is used for personal occupancy or rental income.
• What Is The Deduction Limit?
  • Section 80EE: A deduction of up to Rs. 50,000 is available under Section 80EE for interest paid on your house loan.
  • Section 24(b): A larger deduction of up to Rs. 2 lakh is permitted for self-occupied properties under Section 24(b). The amount of interest you can deduct is unlimited if the property is rented.
• What Is The Criteria?
  • Section 80EE: There are two requirements for this section: the loan amount cannot be more than Rs. 35 lakh, and the property value must be Rs. 50 lakh or less.
  • Section 24(b): This section gives homeowners additional options because, unlike Section 80EE, it has no limitations on the quantity of loans or the value of the property.
• Who Can Benefit?
  • Section 80EE: Only first-time homebuyers are eligible for deductions under Section 80EE, which is applicable as long as their mortgage is still in effect.
  • Section 24(b): More comprehensive in its reach, Section 24(b) serves both new and current homeowners. Interest on loans for both newly constructed and pre-existing homes is covered.
• What Is the Tax Regime Eligibility?
  • Section 80EE: Only deductions allowed under the previous tax system are listed in Section 80EE.
  • Section 24(b): Given that Section 24(b) is deductible under both the old and new tax regimes, flexibility is essential in this situation.
     

Difference Between Section 80EE And Section 80EEA

When it comes to tax benefits on home loans, Section 80EE and Section 80EEA are often mentioned together, but they serve different purposes.

• Overview
  • Section 80EE: Tax deductions for interest paid on residential mortgage loans are available under Section 80EE. For those that meet the requirements, they can deduct up to Rs. 50,000 off their home loan interest each financial year, which they can use until the loan is paid off in full.
  • Section 80EEA: This provision provides an additional tax deduction on interest. It is specifically designed to support first-time buyers of affordable housing. If the property's worth is within a set amount, qualifying persons may be able to claim up to Rs. 1,50,000 per financial year under Section 80EEA.
• Loan Amount Eligibility:
  • Section 80EE: There is a cap of Rs. 35 lakhs on the maximum loan amount that can be deducted under this provision.
  • Section 80EEA: This section requires that the property value fulfils specific affordability requirements, but it does not set a cap on the loan amount.
• Deduction Limits:
  • Section 80EE: Borrowers may deduct up to Rs. 50,000 from the interest portion of their monthly house loan installments under Section 80EE.
  • Section 80EEA: This section provides a more liberal deduction, allowing the house loan interest component of the monthly income to be deducted up to Rs. 1,50,000.
• Eligibility Criteria
  • Section 80EE: Individuals who are purchasing their first home are the only ones eligible for this deduction. The house loan maximum should be Rs. 35 lakhs, and the property value should be more than Rs. 50 lakhs to be eligible.
  • Section 80EEA: This section is restricted to individual first-time homebuyers, just like Section 80EE. But the property's worth can only be up to Rs. 45 lakhs. Furthermore, the carpet area in metro areas should not be larger than 60 square meters (645 square feet); in other cities, it should not be larger than 90 square meters (968 square feet).
• Property Value:
  • Section 80EE: Under this section, the property value can go up to Rs. 50 lakhs.
  • Section 80EEA: For this section, the property value is capped at Rs. 45 lakhs, based on the stamp duty value.
• Who Can’t Claim:
  • Section 80EE: Associations of Persons (AOP), Trusts, Hindu Undivided Families (HUF), and other entities are not eligible for this deduction.
  • Section 80EEA: Likewise, associations of persons (AOP), Hindu Undivided Families (HUF), trusts, companies, and other corporations are not permitted to access this section.
• Lock-In Period:
  • Section 80EE: No specified lock-in time is needed.
  • Section 80EEA: No time limit is imposed by this section either.
     

What Is Better Between Section 80EE And Section 80EEA?

Which is better, Section 80EEA or Section 80EE really depends on your specific needs -

1. First-Time Homebuyers: For first-time buyers, Section 80EEA offers an additional tax deduction of up to Rs. 1.5 lakhs. When buying your first house, this can greatly increase your savings.
2. For Existing Home Loans: Regardless of the number of properties you own, Section 80EE offers income tax benefits on the interest component of your current home loan if you currently have a residential property loan.

Your decision will actually come down to your personal circumstances and financial objectives.
 

Let’s Wrap It Up!

For first-time homebuyers, Section 80EE of the Income Tax Act is like a key to unlocking savings, giving you that extra push to buy the house of your dreams. Envision receiving a small bonus from the government to assist you in reaching your ideal residence! This advantage makes the transition to homeownership a little simpler and more satisfying. Thus, as you move into your new house, keep in mind that Section 80EE was a tiny but important part of making it all happen!

If you are looking for more information about the other Sections like Section 206AB Of Income Tax Act, Section 115BAA Of Income Tax Act, etc., check out our website for more information.

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