​Section 80EE Income Tax Deduction for Interest on Home Loan

Big-budget necessities like home purchases require considerable thought and finance. Many individuals finance these purchases through Home Loans offered by financial institutions. In order to make homebuying more feasible, the government extends several opportunities for claiming tax benefits on Home Loan interest payments. These benefits can be availed under various sections of the Indian Income Tax Act, 1961. One such tax-saving provision is Section 80EE, which allows a deduction on the interest paid by an individual on Home Loans.

What is Section 80EE?

The Income Tax Act, 1961 allows first-time homebuyers to claim deductions under Section 80EE on the housing loan interest. As per the provisions in the clause, a maximum amount of Rs.50,000 can be obtained as tax benefits during a single financial year.   

​Tax rebates under Section 80EE were initially implemented in 2013 - 2014 to provide exemptions to Home Loan borrowers looking to buy their first house. The maximum threshold for claiming the subsidies back then was Rs.1 Lakh and the tax relief was given only for a period of two years.  

Section 80EE was later amended and reintroduced in the year 2017 where the rebate limit was revised to Rs.50,000 and is currently available until one’s Home Loan is fully paid off.

Features of Section 80EE Deduction

If you wish to claim the deductions under Section 80EE of the Income Tax Act, 1961, you should be aware of its key features, which include the following: 

• The value of the property, for which you avail of a Home Loan, should not exceed Rs.50 Lakh.
• The cap on the Home Loan availed for purchasing the property is set at Rs.35 Lakh or less.
• Borrowers can expect a deduction on just the interest component of their Home Loan under this section.
• The Home Loan must be issued by a credible financial institution or housing finance company.
• The applicant must not hold a residential property under his/her name at the time of the Home Loan sanction. In other words, the funds should be utilised for the purchase of the individual's first home.
• One should have availed of a Home Loan to purchase a residential property only and not a commercial property. 
• The Home Loan should have been sanctioned between the fiscal year of 2016 – 2017.

Eligibility for Claiming Section 80EE Deductions

A Home Loan borrower must fulfil the following criteria in order to be eligible for tax rebates under Section 80EE:

• Individual loan borrowers who have purchased a house, either individually or jointly, can claim the tax deductions.
• These tax benefits are not applicable to trusts, companies, a Hindu Undivided Family (HUF), an Association of Persons (AOP), etc. 
• Only first-time homeowners can secure these reductions.
• This section is applicable on a person-to-person basis and not as per the property. Therefore, if you have acquired a property collectively through a joint housing loan, each person repaying the loan amount will be qualified to file for the exemptions separately. 
• The property may be self-occupied or rented out by the owner. It is not necessary for him/her to reside in the house. Thus, if you own a house in Mumbai and live elsewhere in a rented flat, you can still enjoy the tax benefits.

Other Provisions that Grant Deductions on a Home Loan

Section 80EEA is a new section of the Income Tax Act, 1961, which has been introduced in recent years to bestow tax benefits on individuals, who have secured Home Loans for affordable housing projects. However, those who are eligible for claiming deductions under Section 80EEA cannot avail of the subsidies again under Section 80EE. 

Home Loan borrowers are also entitled to further tax deductions on the interest paid under Section 24(b) of the Income Tax Act up to a maximum amount of Rs.2 Lakh. This rebate can be claimed if the owner of the property or his/her family members live in the house. But if the house is let out, the entire interest shall be waived off as a deduction. The eligibility criteria for both Section 80EE and Section 24(b) may differ. In case you are eligible for the deductions under both sections, you will first need to exhaust the limit available under Section 24(b) of the stipulated amount; and then apply for the exemptions under Section 80EE thereafter.

Section 80C of the Income Tax Act offers provisions for tax savings up to Rs.1.5 Lakh per year. It extends cumulative deductions on a wide array of investments ranging from small savings instruments to Home Loan interest repayments. 

It must be noted that for declaring the above tax exemptions, you need to furnish a declaration from the bank, clearly showing the amount outstanding and paid towards the interest and principal components of the Home Loan. Once you declare the applicable subsidies to avail of the tax benefits on the Home Loan, the balance income will be taxed as per the income tax slab rates.

Also Read: Tax Savings Under Sections 80C, 80D, and 80G

How to Claim Tax Deductions Under Section 80EE?

One can claim income tax returns under Section 80EE at the time of filing their income tax returns. You can follow the steps given below to proceed with your tax deduction claims:

• First, you need to estimate the net interest amount paid in the current financial year on your Home Loan.
• After you ascertain the total amount, see if you are eligible to secure the rebates under Section 24(b). If you find yourself eligible, apply for tax deductions up to Rs.2 Lakh under the section.
• You can then claim the remaining amount of Rs.50,000 under Section 80EE.

Things to Remember

Section 80EE of the Income Tax Act, 1961 can result in substantial annual savings. Therefore, if you have a current Home Loan that you are paying off, you should take advantage of this income tax provision to maximise your taxation gains. Availing a housing loan is a high-value, long-term financial commitment. Hence, you should carefully go through the relevant clauses in the Income Tax Act that can grant you considerable tax relief. This will prove beneficial in cutting down the cost of owning a house. When combined together, the loan amount that one can claim as tax deductions turns out to be substantial, garnering significant savings.