Purchasing a home is a significant financial commitment, and the high cost of real estate can be a major deterrent for many individuals. To encourage home ownership and make it more affordable, the Indian government offers tax incentives to home loan borrowers under various sections of the Income Tax Act 1961.
One such section is Section 80EE, which provides additional tax deductions for home loan interest payments. It allows individuals to claim deductions for the interest paid on their home loan, over and above the deductions available under Section 24 and Section 80C of the Act. Read the blog ahead to learn everything that falls under this section. And compare it with other tax incentives for home loans.
Did you know that Section 80EE was introduced in the Income Tax Act in 2013 with the aim of promoting affordable housing and providing additional tax benefits to first-time home buyers?
What is Section 80EE? Home Loan Tax Incentives
For first-time home buyers, the Income Tax Act of 1961’s Section 80EE allows for tax deductions on the interest paid on mortgages. To encourage the purchase of affordable housing and to give first-time homebuyers additional tax advantages, this section was created in 2013. In addition to the deductions allowed by Sections 24 and 80C of the Act, it enables individuals to deduct the interest paid on their mortgage. The highest that might get deducted under this clause in one fiscal year is ₹50,000.
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Features of the 80EE Deduction
Section 80EE of the Income Tax Act 1961 provides additional tax deductions for first-time home buyers on the interest paid on their home loan. The key features of this tax incentive are as follows:
Eligibility
To be eligible for deductions under Section 80EE, the individual must be a first-time home buyer and should not own any other property at the time of taking the home loan. The property must be valued at less than ₹50 lakh, and the loan amount should not exceed ₹35 lakh. The loan should have been taken from a financial institution during the financial year in which the deduction is claimed.
Maximum Limit
The maximum deduction available under Section 80EE is ₹50,000 per financial year. This amount is over and above the deductions available under Section 24 and Section 80C of the Income Tax Act 1961.
Duration
The deduction under Section 80EE is available for a maximum of five years from the date of loan sanction. This means that an individual can claim deductions for a maximum of five financial years starting from the year in which the loan was sanctioned.
Tax Implications
The deductions under Section 80EE are applied to the taxable income of the individual. This means that the deductions will reduce the individual’s taxable income, and subsequently his/her overall tax liability.
Other Factors
It is essential to note that deductions under Section 80EE are available only if the individual does not own any other property at the time of taking the home loan. The deductions are also not available if the individual has availed of any other deductions under Section 80EEA or Section 80EEB of the Income Tax Act 1961.
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Eligibility Criteria for Section 80EE Tax Incentives
To be eligible for tax deductions under Section 80EE, the individual must fulfill the following criteria:
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The individual must be a first-time home buyer, i.e., they should not own any other property at the time of taking the home loan.
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The value of the property must be less than ₹50 lakh.
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The loan amount should not exceed ₹35 lakh.
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The loan should have been taken from a financial institution during the financial year in which the deduction is claimed.
These are the basic eligibility criteria for availing of tax deductions under Section 80EE. It is essential to meet these criteria to claim deductions.
Application Process for Section 80EE
The process of claiming tax deductions under Section 80EE is as follows:
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Ensure that you meet the eligibility criteria mentioned above.
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Keep all your documents related to the home loan and property ready, such as the loan sanction letter, property documents, and interest payment receipts.
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Submit your tax return for the financial year in which you wish to claim deductions.
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Include the deductions under Section 80EE in your tax return form while calculating your taxable income.
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Submit the tax return form along with the required documents to the relevant authorities.
Once your tax return is processed, the deductions under Section 80EE will be applied to your taxable income. You will be eligible for tax benefits as per the provisions of this section. It is essential to follow the correct application process to ensure that your deductions are claimed correctly.
How Does Section 80EE (Tax Incentives) Affect Your Overall Income Tax Liability?
Section 80EE tax incentives can significantly reduce your overall income tax liability. Here is how:
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The deductions under Section 80EE are applied to your taxable income. This means that the deductions will reduce the amount of your income that is subject to tax, and therefore, your overall tax liability.
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For example, if your taxable income is ₹10 lakh and you are eligible for deductions of ₹50,000 under Section 80EE, your taxable income will be reduced to ₹9.5 lakh. This means that you will only be taxed on ₹9.5 lakh, instead of the full ₹10 lakh.
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The amount of tax savings will depend on your tax bracket and the deductions available under Section 80EE. For example, if you are in the 20% tax bracket, deductions of ₹50,000 will result in tax savings of ₹10,000 (20% of ₹50,000).
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In addition to the deductions under Section 80EE, you can also avail of deductions under other sections of the Income Tax Act 1961, such as Section 24 and Section 80C, to further reduce your taxable income and tax liability.
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Overall, deductions under Section 80EE can help you save a significant amount of tax on your home loan interest payments. It is essential to understand the eligibility criteria and the maximum limit on deductions to make the most of these tax incentives.
Maximum Tax Deductions under Section 80EE
The maximum tax deduction under Section 80E is ₹50,00000 per financial year. This means that an individual can claim deductions of up to ₹50,00000 on the interest paid on their home loan in a financial year. It is essential to note that this limit is over and above the deductions available under Section 24 and Section 80C of the Income Tax Act 1961. In addition to the maximum deduction allowed, there are several other key factors to consider while availing of tax benefits under Section 80EE as given below:
Eligibility
To be eligible for deductions under this section, the individual must be a first-time home buyer and should not own any other property at the time of taking the home loan. The property must be valued at less than ₹45 lakh, and the loan amount should not exceed ₹35 lakh. The loan should have been taken from a financial institution during the financial year in which the deduction is claimed.
Duration
The deductions under Section 80EE are available for a maximum of five years from the date of loan sanction. This means that the individual can claim deductions for a maximum of five financial years starting from the year in which the loan was sanctioned.
Tax Implications
The deductions under Section 80EE are applied to the taxable income of the individual. This means that the deductions will reduce the individual’s taxable income, and therefore, the overall tax liability.
Other Incentives
It is essential to note that deductions under Section 80EE are not available if the individual has availed of any other deductions under Section 80EEA or Section 80EEB of the Income Tax Act 1961.
Overall, it is essential to consider these factors while availing of tax benefits under Section 80EE. This is to ensure that you are eligible for the deductions and can maximise your tax savings.
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Impact of Section 80EE on Overall Tax Liability
The impact of Section 80EE on the overall tax liability of a home loan borrower can be as follows:
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This section allows individuals to claim deductions for the interest paid on their home loan. This is over and above the deductions available under other sections of the Income Tax Act 1961. The maximum deduction available under this section is ₹50,000 per budget year.
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The deductions under Section 80EE are applied to the taxable income of the individual. This means that the deductions will reduce the individual’s taxable income, and therefore, their overall tax liability. For example, if the individual’s taxable income is ₹10 lakh and they are eligible for deductions of ₹50,000 under Section 80EE, their taxable income will be reduced to ₹9.5 lakh. This means that they will only be taxed on ₹9.5 lakh, instead of the full ₹10 lakh.
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The amount of tax savings will depend on the individual’s tax bracket and the deductions available under Section 80EE. In addition to deductions under this section, individuals can also avail of deductions under other sections, such as Section 24 and Section 80C. This will further reduce their taxable income and tax liability.
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Overall, Section 80EE can significantly reduce the overall tax liability of a home loan borrower, making homeownership more affordable. It is essential to understand the eligibility criteria and the maximum limit on deductions to avail of the maximum benefits of this tax incentive.
Benefits of Section 80EE
Section 80EE of the Income Tax Act 1961 provides several benefits for home loan borrowers. Some of the key benefits are as follows:
Additional Tax Savings
Section 80EE allows individuals to claim deductions for the interest paid on their home loan. This is over and above the deductions available under other sections of the Income Tax Act 1961. The maximum deduction available under this section is ₹50,000 per financial year. This means that individuals can save a significant amount of tax on their home loan interest payments.
Promotes Affordable Housing
Section 80EE was introduced with the aim of promoting affordable housing and providing additional tax benefits for first-time home buyers. By offering tax incentives, the government encourages individuals to purchase their first home and makes it more affordable.
Also Read: Section 269ST of the Income Tax Act & Penalty for Violation of 269ST Explained
Easy Application Process
The process of claiming deductions under Section 80EE is simple. Individuals can include the deductions in their tax return form while calculating their taxable income and submit it along with the required documents to the relevant authorities.
Duration
The deductions under Section 80EE are available for a maximum of five years from the date of loan sanction. This means that an individual can claim deductions for a maximum of five financial years starting from the year in which the loan was sanctioned.
Conclusion
In conclusion, Section 80EE of the Income Tax Act 1961 provides tax incentives for individuals who take out a home loan to buy their first property. The maximum deduction available under this section is ₹50,000 per year. To be eligible for this deduction, the value of the property must not exceed ₹50 lakh and the loan amount must not exceed ₹35 lakh. Additionally, the loan must have been taken between April 1, 2016, and March 31, 2017. This tax incentive is aimed at encouraging individuals to buy their own homes and can help to reduce their overall tax burden.
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