Tax payment is a moral and fiscal responsibility of every citizen. Governments of all countries use the taxes paid by citizens to formulate reform, growth and development policies. The government also offers various sorts of concessions and deductions on tax payments on various kinds of investments such as life insurance policies, health insurance policies, public provident fund, National Pension Scheme and so on. Since purchasing a home is also a major investment, the government offers several deductions on the repayment of home loans. Let us look at the tax deductions offered under section 80EE of Income Tax Act. Let’s begin by understanding what Section 80EE of the IT Act is If you are a first-time homeowner, repaying a home loan, then the IT Act makes provisions for you to claim deductions on the interest amount paid towards loan repayment. As per this Section of the IT Act, you may claim a maximum deduction of ₹50,000 in a financial year on the interest component of your home loan. This amount can be claimed over and above the deductions offered under Section 80C and Section 24 of the IT Act, under which you can claim deductions of ₹150,000 and ₹200,000 respectively. What are the terms and conditions for claiming deductions under this Section? To claim deductions under Section 80EE, the following terms and conditions should be met:
- Deductions can only be claimed on the first house purchased by the taxpayer.
- The deduction can be claimed only if the market value of the house does not exceed ₹5,000,000.
- The deduction can be claimed only if the amount of money taken as the home loan does not exceed ₹3,500,000.
- The deduction can be claimed only on the interest component of the home loan.
- It is mandatory for the home loan to be sanctioned by a recognised financial institution such as a bank, a housing finance company or a non-banking finance company.
- The tax payer utilising this deduction cannot own another house at the time that the loan is sanctioned.
- The deduction can be availed only if the home loan is obtained for residential properties and not commercial ones.
- To claim deductions under this section, the loan should have been sanctioned between the period of 01.04.16 and 31.03.17.
What are the eligibility criteria for this deduction? The following is the eligibility criteria for claiming deductions under Section 80EE of Income Tax Act:
- The deduction can be claimed by individual taxpayers on residential properties that are purchased either individually or jointly. If you take a joint home loan, with your spouse for instance, to purchase the property and the instalments are paid by both of you; then both parties can individually claim deductions under this act.
- Tax benefits under this section are not applicable for units such as Hindu Undivided Families or HUF, Association of Persons or AOP, trusts and companies and so on.
- You have to be a first time home buyer who has taken a loan from a recognized financial institution to benefit from deductions under Income Tax Section 80EE.
- The deduction applies on per person basis as opposed to per property basis.
- The benefit can be claimed irrespective of the fact that it is self-occupied by the taxpayer or rented out to someone Let’s say, you own the property in Pune but are living in a rented property in Mumbai; you can still claim this deduction.
As is evident, Section 80EE can facilitate a lot of savings on an annual basis. So, if you have an ongoing home loan that you are currently repaying, you should make the most of Income Tax Section 80EE. Ensure that you utilize the deductions offered under this Section and get the much-required relief from tax payments.