Budget 2019 – Rs 1.5 lakh Additional Income Tax deduction on affordable home loans | Section 80EEA

Budget

The Union Finance Minister Nirmala Sitharaman, in her maiden Budget speech on Friday, announced an additional Income Tax deduction of Rs 1.5 lakh on affordable home loans. A new Section 80EEA will be introduced under the IT Act.

As per the proposal, income tax payers will get tax rebates of around Rs 3.5 lakh on home loans of up to Rs 45 lakh borrowed upto March 31, 2020.

But, do note that this additional tax deduction is on ‘affordable housing property‘ only.

What are considered as Affordable Housing Properties?

As per section 80-IBA, the definition of ‘affordable housing’ has recently been altered as below;

  • The residential projects should have been approved on or after the 1st day of September, 2019. The project is on a plot of land measuring not less than –
    • (i) one thousand square metres, where such project is located within the metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater 30 Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); or
    • (ii) two thousand square metres, where such project is located in any other place;
  • The project is the only housing project on the plot of land
  • Properties costing up to Rs 45 lakh (Stamp Duty Value) will be considered as affordable.
  • In metro cities, the carpet area of the residential unit comprising in the housing project does not exceed 60 sq mtr (645 Sq ft) will be classified under affordable housing.
    • Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
  • In non-metro cities, houses with a carpet area of up to 90 sq mtr (968 Sq ft) will be classified under affordable housing.

Rs 1.5 lakh additional Income Tax deduction on affordable home loans | New Section 80EEA

Income Tax Benefits on home loan

Tax benefit u/s 80C

You can claim home loan interest on any number of homes you own. The home loan benefits can be categorised into two parts, principal repayment and interest payment. Benefits for principal repayment are available u/s 80C and the maximum deduction limit u/s 80C is Rs. 1,50,000.

Tax deduction u/s 24

The benefits for home loan interest payments are also available u/s 24B and 80EE of the income tax act. You can claim the home loan interest benefits of up to Rs. 2,00,000 u/s 24B.

Section 80EE for FY 2018-19 or AY 2019-21

For FY 2018-19 or AY 2019-20, the first-time Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan interest payments u/s 80EE. The below criteria has to be met for claiming tax deduction under section 80EE.

  • The home loan should have been sanctioned during / after FY 2016-17.
  • Loan amount should be less than Rs 35 Lakh.
  • The value of the house should not be more than Rs 50 Lakh &
  • The home buyer should not have any other existing residential house in his name.

(I believe that the above Rs 50,000 additional deduction u/s 80EE can be claimed by the eligible home loan borrowers till the end of loan tenure or closure.)

New Section 80EEA for FY 2019-20 or AY 2020-21

Besides the tax deductions under Section 80C and 24b, an individual can now claim up to Rs 1.5 lakh under Section 80EEA from FY 2019-20 or AY 2020-21 onwards, subject to below conditions;

  • The home loan should have been sanctioned between 1st April, 2019 to 31st March 2020.
  • The loan should have been sanctioned by a Financial Institution.
  • The Stamp duty value of the property should not exceed 45 Lakhs.
  • Taxpayer should not own any other residential property on the date of loan sanction.
  • This tax benefit will be available from 1st April 2020 (AY 2020-21) and till the end of the home loan tenure (closure).
  • The total interest deduction is now Rs. 3.5 lakh (Rs 2 Lakh + Rs 1.5 Lakh).

Kindly note that the deduction under Section 80EEA is available for home loans from banks and approved financial institutions only. Under Section 24, even interest paid on home loans from friends and relatives is eligible for tax benefit.

To claim tax benefit under Section 24, you should have received possession of your house (interest paid before possession is eligible for deduction over the next 5 years in 5 equal installments). Section 80EE and 80EEA do not impose any requirement of possession or completion of construction. Therefore, Section 80EEA provides you immediate tax relief even if you have purchased an under-construction property.

Related article :’Under Construction House : How to claim tax deduction on Home Loan Interest payments?

How to calculate Income from House property?

If you eligible to claim this additional Rs 1.5 lakh tax deduction then you can calculate the ‘income from house property’ as below;

First we determine the Gross Annual Value. The gross annual value of a self-occupied house is zero. Whereas in case of Let out house, it is the rent collected.

GROSS ANNUAL VALUE OF THE PROPERTY
Less:  Municipal Taxes paid by owner
          = Net Annual Value (Gross Annual Value – Property Tax)
Less: 30% standard deduction on NAV ( under Section 24(a) of the Income Tax Act)
Less:  Interest on home loan (allowed under Section 24(b))
Less: Interest on home loan (allowed under Section 80EE)
          = Income from house property

My opinion : Considering the eligibility criteria, I believe that this new tax deduction of Rs 1.5 lakh for first time home borrowers may not come as a big relief, it just gives an additional (minimal) tax relief!

Continue reading :

This post is based on the limited available information, so, request you to let us know if any of the above details need to be corrected/updated. Thank you!

(Post first published on 05-July-2019)

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  • Pradeep says:

    I am surprised that they have given a relatively 1.5L additional tax benefit. But a simple calculation shows that the bandwidth given is too high to be fully utilized given where the interest rates are today.
    A simple calculation, for a 45L property one could get 36L loan at about 8.5% interest rate.
    If the tenure is 20 years, the EMI works out to be 31,200 of which interest is 25,500 and reducing. So the max interest one might pay with the first 12 EMIs will be under 300,000.
    Now we are already in July. So if people take a loan now to avail this benefit this year, they might pay less than 2,00,000 as interest in 2019-20 for which there is already tax benefit. How can anyone utilize 3.5L tax benefit?

    We dont know how next year will be like with interest rates, so no point calculating benefits that may or may not come in the future which in any case wont be to the tune of 3.5L as the interest paid out wont be that much for a loan taken now.

    One way of getting this tax benefit is by increasing the tenure to be 25 or 30 years which leads to high interest EMI and but never a wise option.

    • Sreekanth Reddy says:

      Dear Pradeep,
      Thank you for sharing your views!
      But, a first-time home borrower can take this little benefit, if interest out-go is more than is Rs 2 lakh in a given year.
      If he/she opts for fixed tenure and if rates increase, the interest payment can be even more??

      • Pradeep says:

        Hi Sreekanth,
        Agree the first time borrower can take this benefit but my point is for FY 2019-20, this wont be beneficial for sure unless some have have taken a loan in April 2019 and they satisfy all the other conditions like under 45L property value, first home, self occupied, etc.
        Applying and taking a loan in July or August will not give instant benefit to the borrower.
        Mind you we have a budget every year, if a new provision doesn’t help in that year then its not something to cheer about.

        Regarding chances of rate increase, it doesn’t seem like we will see high interest rates for next 6 months to 1 year. Even the US is now turning towards rate cut.

        Given the current rates, I really fail to understand why they have to give extra 1.5L exemption. I am damn sure this is just to make headlines.

        We have to understand there was already a extra 50k exemption for last FY which I think is sufficient for current rates. This is now scrapped.

        The issue is now people will want to take a long tenure (25-30 years) only to take advantage of this exemption even if they can afford to take a 20 year loan.
        I am sure you would agree that tax benefit should not be a reason to go for higher tenure or higher rates for any loan.

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