Affordable housing tax benefits allow a first-time home buyer to claim up to ???1.5 lakh deduction under Section 80EEA along with standard deductions under Section 24(b) and Section 80C.

This blog has covered all the aspects of Section 80EEA, Section 24(b) and Section 80C for home loan tax benefits.

Affordable Housing Tax Benefits Explained

Every time a new buyer purchases a home, the income tax department grants a deduction on home loan interest and the principal repayment through several sections. However, to claim tax benefits on affordable housing, there are some conditions to be met.

What Are The Home Loan Tax Benefits For Affordable Housing?

The home loan tax benefits for affordable housing can be determined by three important sections that favour home loan borrowers: Section 80EEA, Section 24(b) and Section 80C.

Which Home Loan Deductions Can Affordable Home Buyers Claim?

As per these sections, this is how much deduction home buyers can claim:??

1. Section 24(b): Deduction of ???2 lakh on home loan interest for a self-owned residential property.
2. Section 80EEA: An additional deduction benefit of up to ???1.5 lakh on the home loan interest for first-time buyers.
3. Section 80C: Deduction of ???1.5 lakh on the principal repayment amount.

How Do Affordable Housing Tax Benefits Reduce Your Taxable Income?

The government offers different kinds of home loan tax benefits for affordable housing, which lowers the taxable income of an individual taxpayer by deducting a specific amount from the gross total income before tax is calculated.

So, if the initial taxable income is ???15 lakh:

• A homebuyer can claim a deduction of ???2 lakh under Section 24(b)
• And later claim an additional deduction of ???1.5 lakh under Section 80EEA
• Which brings the total deductions capped at ???3.5 lakh

This ???3.5 lakh will be deducted from the total amount, ???15 lakh, which brings your total to ???11.5 lakh, on which the tax will be calculated, reducing your taxable income.

Section 24(b) Deduction on Home Loan Interest

As per Section 24(b), a homebuyer can claim a deduction of up to ???2 lakh on the interest paid on a home loan from the taxable income for a financial year. The deduction can be claimed per year for self-owned property or let-out properties with no upper limit.

Who Is Eligible To Claim Section 24(b)?

These conditions should be met to claim a deduction under Section 24(b):

• An individual should be the owner of the property.
• Co-owners and co-applicants of the loan paying EMIs can also claim the deduction.
• The purpose of the loan should be purchase, construction, reconstruction, repair, or renewal.??
• For an under-construction property, deduction can be claimed only after the construction is completed, as the completion certificate is needed.??
• An interest certificate from the bank or financial institution is needed to claim the deduction.??

What Deduction Is Available Under Section 24(b)?

Deduction limits available under Section 24(b):??

Can You Claim Section 24(b) For An Under-Construction Property?

A homebuyer cannot claim a deduction under Section 24(b) if the property is under construction. However, if the construction is completed within 5 years from the financial year the loan was taken, you can claim the deduction.

All the interest paid during this phase is added up as pre-construction interest, which can be claimed in five equal parts over five years. The five-year period starts from the financial year when the construction finishes and possession is taken.

Learn more about deductions under??Section??24(b).

Section 80EEA: Additional Deduction for Affordable Housing

Section 80EEA is for homebuyers, offering them tax benefits for affordable housing, with a deduction of ???1.5 lakh on interest on home loans every financial year.

Who is Eligible to Claim the Benefits of Section 80EEA?

The following conditions should be met to claim Section 80EEA:

• They should be a first-time homebuyer, especially on the loan sanction day.
• The loan should be sanctioned between 1st April 2019 and 31st March 2022.
• The stamp duty value is not more than ???45 lakh.??
• The old tax regime is followed, as the new tax regime does not include Section 80EEA.??
• If the homebuyer is not already claiming benefits under Section 80EE.

What is the Deduction Limit Available Under Section 80EEA?

A homebuyer can claim a ???1.5 lakh deduction on the interest of a home loan paid during a financial year under Section 80EEA. This deduction can be claimed in addition to the ???2 lakh deduction limit allowed under Section 24(b).

How to Claim Section 80EEA in ITR?

The homebuyer should take care of a few things before claiming Section 80EEA in ITR. They are:

• The loan sanction date must fall between 1 April 2019 and 31 March 2022.??
• The stamp duty of the property registration should not exceed ???45 lakh.??
• It should be filed using ITR_1 or ITR-2 depending on the income status.??
• Homebuyers can first claim deductions under Section 24(b), if eligible.
• The records of the sanction letter, interest certificate and stamp duty valuation are to be maintained.??
• In the deduction schedule, you need to mention an extra amount of ???1.5 lakh under the Section 80EEA field.

Get to know more about home loan interest deduction under Section 80EEA here.

Section 80C: Deduction on Principal Loan Repayment

Replacing Section 88, Section 80C is the most common choice for tax benefits on affordable housing, where home tax liability is reduced by deducting the principal repayment portion of EMIs directly from the gross total income.

Who Is Eligible For Section 80C Home Loan Deductions?

Section 80C follows straightforward eligibility criteria:??

• Residents and non-resident Indians (NRIs) can claim this section.??
• Hindu Undivided Families (HUFs) can claim the benefit.
• Joint owners of the loan can claim the benefit proportional to their share in the loan.??
• The individual should be the owner or a co-owner of the property.
• The property should be possession-ready, as under-construction properties would not qualify.
• The loan is only for the purchase or construction of a house property.

The deduction is limited to home loans but can also be claimed for investments in financial instruments such as EPF, PPF or ELSS.

When to Claim Principal Repayment Under Section 80C?

The home loan principal repayment deduction should be claimed while filing an ITR for the current financial year under Section 80C if stamp duty charges and EMIs were actually paid.

These conditions should be met for claiming deductions under Section 80C:

• The deduction can be claimed only after the construction is completed.??
• The homebuyer must hold the property for at least five years from the end of the financial year in which possession was taken.??
• The deduction is only available under the old tax regime.

How Does Section 80C Reduce Your Home Loan Tax Liability?

Section 80C reduces your tax liability by deducting the principal repayment amount of your loan directly from the taxable income, which brings your final payable tax amount on the lower side.

The qualified expenses to claim this section are specific portions of the EMIs, stamp duty, registration fees and other expenses.

Difference Between Section 80C, Section 24(b), and Section 80EEA

This is the difference between Section 80C, Section 24(b) and Section 80EEA: It basically depends on which type of home loan payment they cover, which can be either principal, standard interest or extra affordable housing income tax deductions.

1. Section 24(b)

• Deducted on: the regular interest paid with EMIs of a home loan for buying, building or repairing a property.??
• The maximum limit is capped at ???2 lakh for a self-owned house, can be higher if the house is rented.??
• Homebuyers repaying the home loan can claim the benefit.

2. Section 80EEA

• An additional deduction is offered on the interest of home loans, especially for affordable housing.??
• The maximum limit is capped at ???1.5 lakh every financial year, on top of claimed Section 24(b).??
• Only first-time homebuyers with a stamp duty of ???45 lakh or less and a loan sanctioned between 1/04/2019 and 31/03/2022 can claim this home loan tax benefit.

3. Section 80C

• Deducted on: the principal repayment amount of the home loan, stamp duty and registration fees.??
• The maximum limit is capped at ???1.5 lakh every financial year.
• An individual or HUF is eligible to claim the tax benefit on a home loan.

How Does Section 80EEA Differ From Section 24(B)?

The difference between Section 80EEA and Section 24(b) can be identified in terms of deduction limits, eligibility, etc.

This table explains the key difference between Section 80EEA and Section 24(b):

Which Affordable Housing Tax Benefit Should Be Claimed First?

Qualified homebuyers for affordable housing benefits can claim Section 24(b) first, before moving to Section 80EEA and Section 80C.??

Which Documents Are Required To Claim Home Loan Tax Deductions?

To claim deductions under Section 80EEA, Section 24(b) and Section 80C, these documents are required:

FAQs

1. Is Section 80EEA still applicable?
Yes, Section 80EEA can be applied through the Old Tax Regime.

2. Can I claim home loan tax benefits before taking possession of the property?
Pre-possession interest can be claimed in five annual instalments after possession under Section 24(b) and Section 80EEA.

3. Can joint home loan borrowers claim separate deductions?
Yes, joint home loan borrowers are liable for deductions under Section 80C, Section 80EEA and Section 24(b).

4. What happens if I sell my house within five years?
If the house is sold within five years, the deduction claimed under 80C will be reversed, though no changes occur to Section 80EEA or Section 24(b).

5. Can I claim both Section 24(b) and Section 80EEA?
Yes, both the sections can be claimed one after the other. You should claim Section 24(b) first and then Section 80EEA.

6. Can NRIs claim affordable housing tax benefits?
Yes, NRIs can claim tax benefits under Section 24(b) and Section 80EEA.

7. Are stamp duty and registration charges covered under Section 80C?
Yes, the registration fee and stamp duty fee are covered under Section 80C.