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.
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 :
- All in one guide to ‘Budget 2019 Proposals related to Personal Finance’
- Income Tax Deductions List FY 2019-20 | List of important Income Tax Exemptions for AY 2020-21
- Revised GST Rates on Real Estate Properties | Latest GST Rates for Under-Construction Properties
- Section 87A Tax Rebate FY 2019-20 | How to check if you are eligible for the Tax Rebate?
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)