Buying a home is a major financial commitment that calls for one’s full consideration. To some people, owning a home will fulfill a cherished dream, and, while that creates unique financial challenges, it is buying a home loan that really puts one in the right direction. Buying a home loan also means the average person agrees to pay off the loan amount and interest over a considerable amount of time.
Fortunately, the government has incorporated various tax advantages under different sections of the Income Tax Act to relieve the obligation of home loan payments. Two sections, 80EE and 80EEA, offer tax advantages to persons availing of a home loan. Bear in mind that tax benefits and eligibility requirements for tax advantages under these two sections differ. This blog elucidates the distinction between Section 80EE and Section 80EEA that will benefit homebuyers.
Overview of Section 80EE
Section 80EE of the Income Tax Act offers a tax rebate on home loan interest for initial homebuyers. This section allows individuals who have availed a home loan for a property worth up to Rs 50 lakhs and involving a loan sum up to Rs 35 lakhs to receive tax benefits. The deduction under Section 80EE enables you to demand up to Rs 50,000 each financial year on the interest contributed towards the home loan. You can utilize the advantage until the total repayment of the loan is over.
You can make it under Section 24 and Section 80C, which are fixed within limits of INR 2,00,000 and INR 1,50,000, respectively.
Example
Suppose Mr Z, a first-time house purchaser, borrowed Rs 35 lakhs in June 2016 to purchase a property worth Rs 45 lakhs. Presume that he will pay Rs 3 lakhs in interest on his house loan for the fiscal year 2022-2023. Apart from the allowance of Rs 2 lakhs permitted under Section 24, Mr Z is qualified to claim a rebate of up to Rs 50,000 under Section 80EE as he fulfils all of the needs of the section. He will reduce his tax obligation as a consequence of the Rs 2.5 lakh deduction in his taxable income.
Eligibility for Section 80EE Deduction
A taxpayer must ensure the following to be eligible to claim deductions under Section 80EE:
- Under Section 80EE, solely individual taxpayers may reduce expenses for properties obtained either jointly or separately. A person can demand this rebate on an individual basis and also jointly with their spouse if they bought the property and are conducting loan payments.
- First-time home purchasers are the sole ones qualified to claim tax allowances under Section 80EE. The person must have obtained a loan from a financial institution to buy their initial residential property to be qualified for this deduction.
- The deduction is solely available for the interest met on the loan and not the principal.
- The loan amount should not exceed Rs 35 lakhs.
- Hindu Unified Families (HUF), trusts, Association of Persons (AOP), and corporations are not qualified for these tax advantages.
- The valuation of property at the time of buying must not be more than Rs 50 lakhs.
- Instead of being utilized for individual properties, Section 80EE is relevant to individuals.
- The taxpayer can leave the property for which they are demanding this rebate to be qualified for this advantage. Rent-giving borrowers are also qualified to reduce this amount.
Claiming of Rebate under Section 80EE
When submitting taxes, a taxpayer may claim an allowance under Section 80EE. You must follow the specified steps in order to decide the maximum amount that you can reduce:
- Ascertain the amount of interest paid on the house loan in general during a particular fiscal year
- Upon ascertaining the whole amount of interest paid, you might reduce your loan interest up to Rs 2,00,000 (vide Section 24 of the Income Tax Act, 1961)
- Section 80EE of the Income Tax Act, 1961 may be applied to claim the rest sum, up to Rs 50,000.
Overview of Section 80EEA
Section 80EEA, launched in the Union Budget of 2019, offers first-time Indian homebuyers lengthened tax breaks. This section permits individuals to write off up to Rs 1.5 lakhs from their home loan interest during a residential property purchase. The gain excludes the available Rs 2 lakh tax rebate under Section 24 of the Income Tax Act. Further, you can assert the deduction under Section 80EEA over and above the advantages existing under Section 80C of the Income Tax Act, 1961, providing significant tax alleviation for qualified homebuyers.
Example
For example, the total interest due for the financial year would be Rs 4.5 lakhs if an initial homeowner availed a house loan for Rs 50 lakhs at an interest rate of 9%. Section 24 of the Income Tax Act allows a rebate of Rs 2 lakh, and Section 80EEA includes another Rs 1.5 lakh for a total allowance of Rs 3.5 lakh. Consequently, there is a significant reduction in taxable income and tax obligations.
Eligibility for Section 80EEA Deduction
Section 80EEA allows the specified assessees to claim a rebate:
- Under Section 80EEA, solely individual borrowers may reduce expenses on property accrued either jointly or singularly
- The stamp duty valuation of the property must not be more than Rs 45 lakh
- Association of Persons (AOPs), businesses, Hindu Undivided Families (HUFs), and trusts are excused from Section 80EEA
- The taxpayer is not required to reside on the property to qualify for a deduction in the case under Section 80EEA.
Claiming Allowance under Section 80EEA
The terms and conditions for claiming an allowance under Section 80EEA are as specified:
- Section 80EEA permits allowances only to first-time homebuyers. This signifies that on the day of sanction of the loan, the assessed should not inherit any residential property
- Section 80EEA permits an allowance of INR 1,50,000 from accumulated taxable income
- The property stamp duty must be INR 40 Lakhs or below
- You must receive the housing loan in the financial year 2019-20 or 2020-21.
Key Differences between Section 80EE and Section 80EEA
Although both Sections 80EE and 80EEA provide tax advantages for home loans, they vary in core aspects. The following are the primary differences between these two provisions:
| Features | Section 80EE | Section 80EEA |
| Meaning | You are permitted a reduction of up to Rs 50,000 under Section 80EE for every financial year. The tax advantage is accessible until the loan is fully repaid and no interest is due. | Under this section, initial homebuyers within India who buy correctly priced homes are qualified for revised income tax rebates on interest payments on their home loan. The advantages of Section 80EEA are only present to them if they utilize a home loan to purchase a reasonably priced house for Rs 45 lakhs. |
| Maximum Amount of Loan | Up to Rs 35 Lakhs | Not Defined |
| Conditions | Only first-time individual homeowners are eligible. The maximum worth of the house is Rs 50 Lakhs. You cannot get a loan of over Rs 35 lakhs. | Only persons buying their initial property are qualified. The payment of stamp duty must be at most Rs 45 lakhs. You should restrict the carpeted area of a property within a metro region to 60 square metres, or 645 square feet. The carpet area of the property cannot surpass 90 square metres (968 square feet) for other cities and towns. |
| Maximum Deduction Permitted of Property Value | Rs 50,000 only upon the interest portion of the loan EMIs. Up to Rs 50 lakhs | Rs 1,50,000 is allowed only on the interest portion of the loan EMIs. Up to Rs 50 lakhs (of stamp duty) |
| Period of loan applicability | Relevant to loans availed in 2013-14, 2014-15, and 2016-17. | Relevant to loans availed in 2020-21 and 2021-22. |
Bottom Line
Although Section 80EE and Section 80EEA offer tax advantages to homeowners who have procured a home loan, substantial differences exist between the two sections. It is vital to comprehend the distinction between 80EE and 80EEA to utilize these tax gains. Section 80EEA delivers a bigger reduction limit, and the need for property valuation is lower than what is needed under 80EE. By knowing the distinction between 80EE and 80EEA, homeowners can cash in on the tax gains furnished by the government and decrease their tax liability.
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