Home Loan Tax Benefits Under Section 80EEA of the I-T Act, 1961

One of the significant advantages of availing a Home Loan is that you can enjoy multiple tax benefits that helps in reducing your tax outgo. While Section 80C allows you to claim up to ₹1.5 lakh deduction on the principal paid towards your Home Loan, Section 80EEA lets you enjoy deductions up to ₹1.5 lakh on the interest paid towards your home loan. This unique tax provision offers additional deductions specifically aimed at first-time buyers, providing a crucial boost to your financial planning. That said, to claim this tax benefit, you need to meet certain terms and conditions. 

In this article, we’ll explore how Section 80EEA works, who qualifies, and actionable strategies to maximise your tax savings. Whether you’re stepping into the real estate market for the first time or looking to optimise your existing financial setup, this guide will equip you with the insights needed to take full advantage of these exclusive tax benefits and move closer to owning your dream home. 

Tax Benefits on Home Loan (FY 2024 – 25)

What is Section 80EEA? 

Under Section 80EEA, you can claim a deduction of up to ₹1.5 lakh per financial year on the interest paid against your home loan. This deduction is an addition to the already existing Section 24(b), through which you can claim tax deduction up to ₹2 lakh on the interest paid towards your housing loan in a financial year. 

Apart from the interest component, homebuyers can also claim deductions pertaining to stamp duty and registration charges incurred at the time of acquiring the property.

Who Can Claim Deductions Under Section 80EEA?

• Home loan tax benefits are only available in the old regime.
• You can claim home loan tax deductions under Section 80EEA until the loan is completely repaid or for a maximum of five years, whichever is earlier. 
• It's important to note that this deduction is available only for the interest component of the home loan repayment and not for the principal amount. 
• The home loan must be availed from a recognised bank or a housing finance company.
• The loan should be used for the purchase or construction of a residential property that is priced ₹45 lakhs or below.
• The home loan must be sanctioned between April 1, 2019, and March 31, 2022.
• At the time the loan is sanctioned, the individual must not own any residential property. This benefit is available only to those purchasing their first home.

Other Terms and Conditions for Claiming Tax Benefits u/s 80EEA

Carpet Area Conditions: These requirements are outlined in the memorandum to the finance bill, but not in Section 80EEA:

• The carpet area of the house property must not exceed 60 square meters (645 sq ft) in metropolitan cities such as Bengaluru, Chennai, Delhi NCR (limited to New Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata, and the entire Mumbai Metropolitan Region.
• In other cities or towns, the carpet area should not exceed 90 square meters (968 sq ft).

These conditions apply to affordable real estate projects approved on or after 1st September 2019.

Benefits of Section 80EEA Home Loan Tax Deduction 

Now that we understand Section 80EEA of the Income Tax Act, let's explore the benefits of the home loan tax deduction it offers:

• Reduced Tax Liability: By availing the deduction under Section 80EEA, you can reduce your tax liability, as the interest paid on your home loan is deductible from your taxable income. 
• Increased Savings: The deduction allows you to save a significant amount on the interest paid on your home loan. This can result in substantial savings over the tenure of the loan. 
• Affordability: The provision is specifically targeted towards affordable housing, making it easier for individuals to purchase their first homes. With the rising cost of real estate, this deduction provides much-needed relief to first-time home buyers. 
• Encouragement for Homeownership: The 80EEA deduction encourages individuals to invest in real estate and fulfil their dream of owning a home. It acts as a catalyst for homeownership by making it more financially viable. 

Sample Calculation of 80EEA Deduction 

Let's understand how the 80EEA deduction works with a sample calculation: 

Suppose you took a home loan of Rs. 30 lakhs at an interest rate of 7% p.a. for a property valued at Rs. 40 lakhs. The loan was sanctioned in the financial year 2019-2020.

• Interest Payable:

  The annual interest payable on your home loan is calculated as:

  30,00,000 x 7% = Rs. 2,10,000.

   

• 80EEA Deduction:

  Under Section 80EEA, you are eligible for a deduction of up to Rs. 1,50,000 on the interest paid, provided the loan meets the specified criteria. In this case, since the interest payable is Rs. 2,10,000, you can claim the maximum deduction of Rs. 1,50,000.

   

• Impact on Taxable Income:

  Your taxable income will be reduced by Rs. 1,50,000, which will result in a lower tax liability for the year.