Section 80EEA: Deduction on home loan interest for affordable housing extended in Budget 2021

Presenting the Budget for fiscal 2021-2022, finance minister (FM) Nirmala Sitharaman, on February 1, 2021,  said the additional benefit under the section, provided on payment of the interest component of home loans, will be extended till March 31, 2022. In last year’s Budget the FM has extended that timeline for one year to March 31, 2021.

“In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 lakhs, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakhs shall, therefore, be available for loans taken up till March 31, 2022, for the purchase of an affordable house,” Sitharaman said, on February 1, 2021, during her 2021 Budget speech.

“Affordable housing is set to get a boost, from the extension of the tax holiday and Section 80EEA, till March 31, 2022. Looking at the experience of the last one year, affordable housing will get more buyers, as people want to secure their lives by owning a home. The demand for affordable housing is at an all-time high,” said Pradeep Aggarwal, founder and chairman, Signature Global and chairman, National Council on Affordable Housing, ASSOCHAM.

Launched in the 2019 Budget, Section 80EEA helps first-time home buyers to save an additional Rs 1.50 lakhs per year against the home loan interest payments, over and above the Rs 2 lakhs deduction limit allowed under Section 24 (b), for the purchase of housing units worth up to Rs 45 lakhs.

Did you know that first-time home buyers in India enjoy additional deductions on income tax, if they buy the property with the help of home loans? Specific provisions have been made in the Income Tax Act, 1961, to offer exemption to first-time home buyers for purchase of affordable homes, over and above the benefits enjoyed by other categories of buyers.  These include benefits under Section 80EE and Section 80EEA.

In this article, we will discuss at length Section 80EEA and answer every question around benefits, eligibility, deduction limit and more, offered to first-time home buyers under this section.

Housing for All and the introduction of Section 80EEA

In its first term that started in 2014, the prime minister Narendra Modi-led NDA government launched its pet ‘Housing for All by 2022’ programme. In order to complete that ambitious target, the central government launched several measures to encourage first-time home buyers. The introduction of Section 80EEA in 2019, was a step in that direction.

With a view to achieving the target of Housing for All by 2020, the government extended the interest deduction under Section 80EEA for loans taken during the period between April 1, 2019 and March 31, 2021.

What is Section 80EEA of the Income Tax Act?

Section 80EEA was introduced by Finance minister Nirmala Sitharaman in the 2019 Union Budget with an aim to give a boost to the centre’s ‘Housing for All by 2022’ programme, by way of offering additional tax benefits on the purchase of affordable homes.

“In computing the total income of an assessee, being an individual not eligible to claim deduction under Section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property,” reads Section 80EEA.

What is the amount of deduction available under Section 80EEA?

Under the provisions of the section, home buyers can save an additional Rs 1.50 lakhs per year towards the interest paid on home loans, over and above the Rs 2 lakhs that they already save under Section 24 (b) .

“Interest paid on housing loan is allowed as a deduction to the extent of Rs 2 lakhs in respect of self-occupied property. In order to provide further benefit, I propose to allow an additional deduction of Rs 1.5 lakhs for interest paid on loans taken up to March 31, 2020, for purchasing an affordable house up to Rs 45 lakhs in value. Therefore, a person purchasing an affordable house, now will get an enhanced interest deduction up to Rs 3.5 lakhs,” Sitharaman said in her 2019 Budget Speech. The period covered was extended for another year in the Budget 2020.

Do note here that all categories of buyers can claim deduction on home loan interest payment under Section 24(b). The rebate of Rs 1.50 lakhs against interest payment under Section 80EEA is over and above this limit.

Further extension of Section 80EEA expected in Budget 2021

Keeping in view the economic slowdown caused by the Coronavirus pandemic and its impact on residential demand in India, industry experts are of the view that the government should announce a further extension of Section 80EEA in its upcoming Budget for 2021-2022, to be presented by the FM on February 1, 2021. As the government moves closer to its ambitious Housing For All by 2022 deadline, doing so becomes particularly crucial to support the affordable housing segment in the aftermath of the pandemic.

What is affordable housing?

It is pertinent to note here that before Section 80EEA came into effect, properties worth up to Rs 50 lakhs fell under the definition of ‘affordable homes’. With the insertion of Section 80EEA in the income tax law, properties worth only up to Rs 45 lakhs qualify as affordable homes, since September 1, 2019.

Income tax deductions for interest paid on home loan

Who is eligible to claim deduction under Section 80EEA?

The Finance Bill, 2019, further specified the eligibility to avail of benefits under Section 80EEA.

Can NRIs claim deduction under Section 80EEA?

Since the law does not specify whether a first-time buyer has to be a resident Indian to claim deduction, it has been interpreted by tax experts that even non-residents claim deductions under Section 80EEA.

What are the conditions to claim deduction under Section 80EEA?

What is the area limit of unit to claim deduction under Section 80EEA?

According to the Finance Bill, if the unit is located in a metropolitan city, its size should not exceed 645 sq ft or 60 sq metres. For units in any other city, the size has been limited at 968 sq ft or 90 sq metres.

Which cities are considered metropolitan cities under Section 80EEA?

Cities that are considered metropolitan for this purpose are Bengaluru, Chennai, Delhi, Faridabad, Ghaziabad, Greater Noida, Gurugram, Hyderabad, Kolkata, Mumbai and Noida.

Can deductions be claimed under Section 80EEA if the property is not self-occupied?

Section 80EEA does not specify if the property must be self-occupied, to seek the tax break. This also allows buyers who are living in rented accommodations to claim deductions while also claiming HRA benefits under Section 80GG.

Can joint owners claim deductions under Section 80EEA separately?

In case the joint owners are also co-borrowers, they can both claim Rs 1.50 lakhs each as deductions under this Section, provided they meet all the other conditions.

What is the difference between Section 80EEA and Section 24(b)?

Buyers can claim deductions under both, Section 24(b) and Section 80EEA, and enhance their total non-taxable income to Rs 3.50 lakhs, if they meet the eligibility criteria. However, deductions under Section 80EEA can only be claimed after exhausting the Rs 2-lakh limit under Section 24(b).

*While a rebate of Rs 2 lakhs is allowed for self-occupied property, the entire interest is allowed as deduction in case of let-out property.

**Section 80C specifies that buyers should not sell the property for five years, to claim deductions. This is known as the lock-in period.

What is the difference between Section 80EEA and Section 80EE?

First-time buyers claiming deductions under Section 80EE cannot claim deductions under Section 80EEA. This is specifically mentioned in the law.

How home buyers can use Section 80EEA to claim maximum deduction?

Since Section 80EEA has been introduced to help the middle-income group to own a home by way of higher monetary support, let us see how much of his income a person can make non-taxable, if he were to buy his first home today.

Tax calculation example

Can I claim deduction under Section 80EEA if loan was taken in 2015?

Since the provision specifically mentions that the deduction will apply on only those loans that have been/would be granted between April 1, 2019, and  March 31 2021, people whose loans have been sanctioned prior to or after this period, will not be eligible to claim the additional rebate under Section 80EEA.

ITR filing to claim deductions under Section 80EEA in 2020

While filing their income tax return for the assessment year 2020-21, the tax payer has to be careful, as the new form carries various new provisions that were introduced in Budget 2019. This is true for the extension of the validity of Section 80EEA till March 31, 2021. The new ITR provides tax payers with the option to claim deductions under Section 80EEA.

Also note that the time limit to file the ITR has been extended till December 31, 2020, keeping in view the Coronavirus pandemic-led complications for the general public.

FAQs on Section 80EEA

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