Income Tax Deduction on Home Loan: Section 80EE, 80EEA & 80C
- Sep 16, 2022
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The 80EE Section
Section 80EE was brought back into effect in the 2016–17 fiscal year budget. This Section of the tax code allows first-time homeowners to qualify for a tax deduction of up to Rs 50,000 against the interest they pay on their house loans, provided they fulfill certain requirements. This exemption is in addition to any deductions that may be taken advantage of under Section 24(b).
- Only a financial institution should have approved the loan for the acquisition of residential property between April 1, 2016, and March 31, 2017, and only for some time between those two dates.
- The loan amount should not be more than 35 million, and the property’s value should not exceed 50 million.
- At the time of the property registration, the buyer should not have any other properties registered in his name. He should present a certificate of interest from his bank to be eligible for the benefit.
In the interim Budget for 2019, the government introduced Section 80EEA to offer first-time buyers an additional tax deduction of Rs 1.50 lakh a year. This deduction is in addition to the exemption offered under Section 24, which was done to boost the government’s housing-for-all-by-2022 initiative. However, a first-time buyer qualified for tax incentives under Section 80EE cannot claim deductions since it contradicts that Section’s terms. To be eligible for deductions under Section 80EEA, a borrower must comply with several restrictions and conditions.
- The price of the property must not be more than Rs 45 lakh.
- The unit size should not exceed sixty square meters (sqm) in metro areas and ninety sqm in other places.
- The money for the loan must come from a financial institution.
The 80C Section
Under its overall deduction limit of Rs 1.50 lakh per year, Section 80C allows taxpayers to deduct payments made toward the principal of their home loans. Stamp duty and registration fees incurred with property acquisition are eligible for inclusion as deductions under this section.
Please note that the buyer cannot sell his property for five years to qualify for this deduction. If something like that were to occur, the department in charge of your income tax would deduct the tax from the amount of your income that it had previously given.
What is meant by Pre-Construction Interest Paid?
The borrower will be able to claim deductions for the interest they paid on the loan throughout the pre-construction period in five equal payments beginning with the year the construction is finally finished. This indicates that a borrower who anticipates that his home will be finished by March 2025 may begin filing for deductions as early as 2025.
Losses Incurred Due To Residential Property
Because the GAV of properties that their owners inhabit is regarded to be zero, the owner will necessarily incur a loss on the value of his dwelling property due to paying municipal taxes and interest on his mortgage. Even though a rented property brings in a certain income for its owner, this revenue is likely substantially lower when compared to the responsibility that comes in the form of interest on the homeowner’s mortgage and property tax. Therefore, the taxpayer would be at a financial disadvantage in any scenario.
To provide relief to these taxpayers, Section 71 of the law governing income tax prescribes the set off of losses from house property under other heads. These other heads include income from salary, other sources, profits and gains from business and profession, and capital gains. It was possible to carry forward the unadjusted losses incurred under other items for up to eight years after the year in which the loss was incurred. After this eight-year term has passed, the deduction may only be claimed under the income from the home property head.
However, the amount that might be set off against other headings has been restricted at Rs 2 lakh per year in the Budget for 2017-2018 for all types of properties, including those that are self-occupied and those that are leased. This is the case regardless of whether or not the properties are rented.
What is the difference between a property inhabited by its owner and one rented out or "deemed rented out?"
When you or your family live in a home, and there is no thought given to renting it out, you are said to be self-occupied.
Whereas the one that you have rented out is called a “let out." Therefore, the money you get from renting your home counts as “revenue from real estate."
If a taxpayer has more than two residential properties, only two (before, only one) may be used for personal purposes, and the third one will be recognized as a rental property whether or not it is rented out.
To calculate taxes, such a property would be deemed rented for the whole year, but the real rent would only be considered for the period during which it generated income from tenants.
How is tax liability determined when a property has a portion leased out and another portion inhabited by the taxpayer?
Both sections will be regarded as separate properties. The tax for the different sections will be determined based on whether the Section is inhabited by the owner or rented out to others.
Since he does not own the property, the income he earns from it must be reported under “revenue from other sources" or “business income."
If the lease length is more than 12 years, the lessee will be assumed to be the property owner, and he will be required to pay taxes on any income he derives from the home property.