Section 80EE Deduction

Section 80EE is a facility in the Income Tax Act that provides relief for taxpayers who have obtained a home loan. The section allows taxpayers to claim a deduction for the payment of interest on home loans. The deduction is available for individuals and Hindu Undivided Families (HUFs). The section was first introduced in the Union Budget for the Financial Year 2013-14 to help first-time homebuyers through tax reliefs.  The amount paid as repayment of the principal amount of a home loan by an individual or HUF is already allowed as a tax deduction under Section 80C of the Income Tax Act. The Government wished to introduce an additional provision in the Act to ensure the availability of deductions for interest payments on housing loans. Hence, Section 80EE was introduced in the Act. The tax benefit was restricted to fifty thousand rupees at the introduction. However, the Government has proposed to enhance the facility during the subsequent assessment years. Taxpayers may note that the benefit under this section will be available exclusively if the assessee does not possess any other residential house property on the loan's sanction date.  A person can claim this deduction while filing the income tax return form by specifying the amount of interest paid in the appropriate place. The required documents are from the lender, specifying the interest and the principal amount paid. In addition, the taxpayer should produce a document from the lender concerning the statement of interest paid, the principal amount on the home loan, and the amount paid to date.

What is Section 80EE Deduction?

Section 80EE is a tax benefit introduced in the 2013-14 budget to promote homeownership among first-time buyers in India. It allows eligible individuals to deduct a specific amount of interest paid on their home loan from their taxable income, thereby reducing their overall tax liability.

Eligibility Criteria for Claiming Section 80EE Deduction

A deduction under Section 80EE can be claimed by assessees who meet the prescribed conditions for eligibility. A tax deduction of fifty thousand rupees can be claimed for interest paid on a home loan. The deduction under Section 80EE is over and above the tax deduction of one lakh and fifty thousand rupees under Section 80C. However, not all taxpayers can claim a deduction under Section 80EE. To be eligible to claim a deduction under Section 80EE, the taxpayer must satisfy the specified eligibility conditions. The specified conditions are the following:

1. The taxpayer should be an individual assessee. However, the assessee may be a resident or non-resident.
2. The deduction under this section is exclusively for individuals. Hindu Undivided Families (HUFs) or charitable trusts cannot make a claim under this section.
3. The assessee has taken a loan for purchasing or constructing a residential house property.
4. The assessee can purchase the residential house property in the taxpayer's own name or jointly.
5. The loan should have been taken from a bank or housing finance company. The bank may be a nationalized bank or a private sector bank.
6. The amount of funds borrowed should not exceed thirty-five lakh rupees.
7. The value of the residential house property purchased should not exceed fifty lakh rupees.
8. The assessee should not own any residential house property on the date on which the sanction of the loan was approved.
9. The benefit conferred by the section applies from the financial year 2016-17 onwards.
10. The deduction can be used on home loans sanctioned between 1 April 2016 and 31 March 2017. However, the deadline has since been extended to 31 March 2020.
11. The tax benefit here can be claimed only till the time the repayment of the loan continues.
12. Deductions are applicable only for home loans paid for the first house property.
13. The property in question may be either self-occupied, vacant, rented or deemed to be let out.
14. If the taxpayer claims a deduction under this section, then the person will not be eligible to claim any deduction under Section 24 again for the same amount of interest.
15. Section 80EE is applicable on a per-person basis instead of a per-property basis. So, suppose a person has purchased a property jointly with a spouse, and they both are paying the loan instalments; then both can individually make a claim under this section.
16. Resisting in the property for which one wants to claim this deduction is unnecessary. So, borrowers staying in rented accommodations can also claim this deduction.

To learn about the concept of Tax Audit Turnover in Income Tax, click here.

Benefits of Claiming Section 80EE Deduction

Claiming the deduction under Section 80EE offers significant financial benefits to eligible first-time homebuyers:

• Reduced Tax Liability: The deduction lowers your taxable income, leading to a lower tax amount payable to the government.
• Financial Relief: This translates to substantial savings, especially for individuals in higher tax brackets.
• Increased Savings Potential: The tax savings can be used for other financial goals, such as retirement planning or child education.

How to Claim Section 80EE Deduction

Claiming the deduction under Section 80EE involves a straightforward process:

1. Gather Documents: Compile all relevant documents, including home loan sanction letters, loan repayment statements reflecting interest payment details, and property sale deeds.
2. File Income Tax Return (ITR): While filing your ITR, choose the appropriate ITR form that allows claiming deductions under Section 80EE (typically ITR-2 or ITR-3).
3. Furnish Details: In the designated section of the ITR form, fill in the details of your home loan interest payment.
4. Supporting Documents: Ensure you have the necessary documents ready for verification by the tax authorities if required.

Consult an IndiaFilings tax professional to clear through the ITR filing process.

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Updated on: April 2nd, 2024