80EEA – New Tax Exemption on Loan for Purchase of Affordable House

"Housing for All" has been one of the primary goals of the current government. Several initiatives have been introduced in this regard to make housing affordable, especially for first-time buyers. In Budget 2019, Finance Minister Nirmala Sitharaman introduced Sections 80EE and 80EEA in the IT Act to offer additional tax deductions to first-time home buyers.What are the eligibility criteria for Section 80EEA? Can existing home buyers who are currently repaying their housing loan claim this deduction? Answers to all of these important questions regarding Section 80EEA are discussed below-

Under this section, first-time low-cost home buyers who have taken a housing loan can save an additional Rs. 1.5 lakhs on the interest payments in a financial year. This deduction is over and above the existing deduction of up to Rs. 2 lakhs that is available under Section 24(b) of the IT Act.However, this deduction is only applicable to affordable homes that cost up to Rs. 45 lakhs. Before the introduction of Section 80EEA, homes up to Rs. 50 lakhs qualified as affordable homes and were eligible for affordable housing initiatives of the government. But section 80EEA has reduced the affordable house cost limit to Rs. 45 lakhs.

• Individual home loan applicants are only allowed to claim this deduction. Joint owners who are co-borrowers of the loan can also claim the deduction individually. HUFs, companies, etc., are not eligible for this deduction.
• Borrowers who claim deduction under Section 80EE are not eligible to claim deductions under Section 80EEA.

• The deduction is only available for first-time affordable home buyers who have taken a housing loan from a registered financial institution.
• Only home loans sanctioned between April 1, 2019, and March 31, 2022, can claim this deduction.
• The deduction limit of Rs. 1.50 lakhs in a financial year is only applicable to the interest component of the loan and not the entire repayment amount.
• The loan should be taken for purchasing a residential property and not for repair, reconstruction, or maintenance.
• The cost of the property cannot exceedRs 45 lakhs.

To claim for deductions under 80EEA, you should not own a property or home on the date of approval of the loan.

Section 80EE is also introduced to offer additional deductions to first-time home loan buyers. However, it is only applicable to home loans sanctioned between April 1, 2016, and March 31, 2017. Under Section 80EE, first-time homebuyers who have taken a home loan can claim a deduction of up to Rs 50,000 on the interest component of their loan in a financial year.This deduction is available for properties of up to Rs 50 lakhs with the maximum loan amount of Rs. 35 lakhs. Also, this deduction is over and above the deduction limit of Section 24(b). But as mentioned above, borrowers claiming deduction under Section 80EE cannot claim additional deduction under Section 80EEA.

Section 24(b) allows deduction of up to Rs. 2 lakhs on the interest component of a home loan or personal loan taken for purchase, construction, or repair of a residential property. The deduction limit of Rs. 2 lakhs is applicable for self-occupied property, and the entire interest component can be claimed as a deduction in the case of let-out property.Unlike Section 80EE and 80EEA, deductions under Section 24(b) can be claimed even if the claimant is not a first-time homebuyer. This is an accrual basis deduction wherein the deduction can be claimed irrespective of whether the interest is paid or not.The claimant should be the property owner to claim this deduction, and the loan should also be in their name. Section 80EE and Section 80EEA allow first-time homebuyers to claim a deduction over and above the deduction limit of Section 24(b) but only after exhausting the Rs. 2 lakhs limit available under 24(b).