Section 80EE – Income Tax Deduction on Home Loan Interest

Jan 15,2020 / By Prahalad Singh / No Comment

Home loan tax benefit under section 80EE

What is Section 80EE and its advantage?

Section 80EE permits Income Tax benefits on the interest portion of the home loan taken from any public/private financial institution. The deduction permitted under this section is for the interest paid on a home loan for up to a maximum of Rs 50,000/fiscal. You can continue to claim the deduction until you have fully repaid the loan amount.

What are the features of the Section 80EE deduction?

Following are the feature of Section 80EE Deduction under Income Tax:

The deduction under section 80EE is available only for individuals. This means, if you are a Hindu Undivided Family (HUF), an association of persons (AOP), a company or any other kind of taxpayer, you can not claim any benefit under this section.
This deduction i.e. up to Rs. 50,000 is over and above the Rs 2 lakh limit under section 24 of the Income Tax Act.
To claim this deduction, you should not own any other house property on the date of the loan sanction from a financial institution.

What is the maximum amount of tax-deductible for a home loan?

The maximum tax-deductible under specified sections for a home loan is listed below:

Income Tax Act Sanctions	Nature of home loan deduction	Maximum amount deductible
Section 80EE	Additional home loan interest tax benefit for first-time homebuyers	Rs 50,000
Section 80C	Tax deduction on the principal repayment	Rs 1.5 lakh
Section 24	Tax deductions on the interest amount payable	Rs 2 lakh

How to Calculate Home Loan Interest?

Your home loan interest rate directly affects how affordable the loan is and how conveniently you can repay it. Considering your repayment is in the form of EMIs that include both interest and principal parts, a lower home loan interest keeps down your EMIs. Therefore, it is best to choose a lender who offers low home loan interest rates. It is always advisable to calculate your home loan interest rate before you submit your application.

How Home Loan Interest is Calculated in India?

In India, there are two types of home loan interest rates i.e. fixed and floating. When you choose a fixed interest home loan, the interest stays constant throughout the loan period. On the other hand, when you choose a floating interest rate, it changes from time to time. There are several factors that are taken into consideration to arrive at a value for either type of interest rate.

Can I claim tax benefits on home loan for an under-construction property?

The following rules apply for such deduction for an under-construction property:

If the construction is completed within 5 years, a deduction of Rs.2 lakh is applicable.
If the construction is not completed within 5 years, only up to Rs.30,000 is deductible.

What are the eligibility criteria for claiming Section 80EE Deductions?

The Eligibility criteria for claiming 80EE deductions under home loan requires a taxpayer has to make sure of the following points:

Only individual taxpayers can claim deduction under Section 80EE on properties purchased either individually or jointly. If an individual has bought a property jointly with his or her spouse name and they are both paying the installments of the loan, then both can individually claim this deduction.
E-tax benefits are not applicable to the Association of Persons (AOP), companies, Hindu Unified Families (HUF), trusts, etc.
Tax benefits under Section 80EE can only be claimed by first-time home buyers. For claiming this deduction, the individual must have taken the loan from a financial institution for buying his/her first home or residential property.
Section 80EE is applicable on a per-person basis instead of a per property basis.
To claim this benefit, it is not mandatory for the taxpayer to live or stay in the property for which he or she is claiming this deduction. Borrowers residing in rented houses can also claim this deduction.

What are the conditions for claiming deductions under Section 80EE?

The following are the conditions for claiming deduction u/s 80EE:

The loan must be approved between 01.04.2016 to 31.03.2017
The loan amount taken for the house must be Rs 35 lakhs or less
Value of the house should be Rs 50 lakhs or less
The loan must be approved by a Financial Institution (FI) or a Housing Finance Company (HFC)
As on the date of the approval of the loan, no other house property must be owned by you.
The deduction can only be claimed by individuals for the house purchases jointly or singly.

What are Tax Benefits on Principal Re-paid?

U/S 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of home loan is Rs. 1.5 lakh. Deduction u/s 80C also covers investments done in the PPF Account, Tax Saving Fixed Deposits, National Savings Certificate, Equity Oriented Mutual funds, etc. subject to the maximum of Rs. 1.5 lakhs.

Apart from this, there are stamp duty and registration charges that one can claim under the above-mentioned section. However, the claim can only occur in the year in which the payment has been made.

There is a provision under which this repayment of the principal amount of housing loan is allowed. The deduction is only possible after the house gets fully completed and there is a completion certificate issued by the local body for the same. Any under-construction house is not going to be a part of this section.

Is home loan top-up eligible for tax deduction?

A home loan top-up is eligible for tax deduction u/s 24(b) and 80C only if it is used for -

Acquisition/construction of a residential property.
Renovation or repair of such property.
Such claims should also be availed with valid receipts and documents.

Who can Claim Section 80EE Deduction?

Section 80EE deduction can be claimed by an individual for the amount paid as interest on the home loan. The maximum deduction u/s 80EE is Rs.50,000. Section 80EE deduction can be claimed over and above the deduction of section 24 and section 80C which are Rs. 2,00,000 and Rs. 1,50,000 respectively.

What is Covered U/S 80EE?

Section 80EE, Income Tax Deduction on Home Loan Interest. Section 80EE allows income tax benefits on the interest portion of the house property loan taken from any financial institution. As per this section, you can claim a deduction of up to Rs. 50,000 per fiscal.

What is the difference between Section 80EE and Section 24?

The deduction for interest on a home loan can be claimed u/s 24 of the Income Tax Act, 1961. The limit u/s 24 is Rs. 2,00,000. This deduction can only be claimed if the owner or his or her family members live in the house property. The whole interest shall be put off as a deduction in case the house is on rent.

If one is able to satisfy both conditions of the sections i.e. Section 24 and Section 80EE, the individual can avail benefits under both sections. In order to do that, the individual will first need to consume the limit u/s 24 and then claim the additional benefit u/s 80EE. Hence, the deduction u/s 80EE is in addition to the limit of Rs. 2,00,000, as u/s24.

Is There Home Loan Tax Benefit on a Second Home?

If you are taking a second home loan to buy another property, tax gains are applicable to the due interests. Here, you can claim the whole interest amount paid as no cap is applied here.

At present, individuals can claim only one property as self-occupied and make tax payments on the other based on notional rent. In the February 2019’s Interim Budget, a proposal has been put forward saying that an individual can claim a second home as self-occupied property. This tries to help borrowers save more money in the form of taxes.

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GST Update: New GST Rates For Real Estate

Feb 26,2019 / By Prahalad Singh / No Comment

The Goods and Service Tax (GST) Council in its 33rd meeting has been conducted on Wednesday, 24th February 2019. The discussion on real estate related issues have been discussed and The lower tax burden on home buyers is expected to push demand in the segment which will, in turn, will keep developers committed to building more affordable homes. The decision will provide relief to the middle-class homebuyers in metros as well as non-metro cities. At the same time, the decision is expected to help the govt’s move towards achieving its target of “Housing for All by 2022”.

Demand for residential properties is expected to receive a major boost following GST the government’s decision to reduce the Goods & Service Tax (GST) rates for under-construction projects to 5% from the effective rate of 12%. Keeping in mind the objectives of “Housing for All by 2022”, the government has reduced the GST to marginal 1% for affordable housing. Apart from that, completed projects which have received Occupancy Certificate (OC) will not attract GST.

Rationalization of GST Rate:

Residential Segment Type	Existing Effective GST Rate	New Effective GST Rate	ITC Availability
Residential properties outside affordable segment	12%	5%	Without ITC
Affordable housing properties	8%	1%	Without ITC

3. New Definition of Affordable housing – A residential house/flat of carpet area up to 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having a value up to Rs 45 lacks.

Both conditions will have to be met – house having a carpet area of 50 sq mtr valued at 50 lacs will be taxable at 5% and not 1%.

As per GST Council, Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata, and Mumbai (the whole of MMR).

4. Builders for the above types of residential projects will not be eligible to claim the input credits. As a result, the elimination of Input Credit Tax benefit may hit profitability for the supply side.

5. Transferable Development Rights /Joint Development Agreements / Long term lease premium and FSI(Floor space index) transfers shall be exempted only in case if it pertains to a taxable residential project, in other words, TDR(Transfer of Development Agreements) for commercial projects will be taxable @ 18%

6. Above changes will be effective from 1st April 2019 after notifications are issued

How will the new GST Rate Benefit the Homebuyers?

Now the homebuyers will get a fair price deal. Earlier, the GST Tax rate was 8% for affordable housing properties and 12% for regular housing projects. But in the GST Council Meet that happened on Feb 24, 2019, the GST rate was cut down to 1% for affordable housing projects and 5% for regular housing projects, with no input tax credit.
Affordable Housing plans will get attracted to GST at 1%.
The interest of the homebuyers/consumers towards buying a property has been increased.
Input Tax Credit not being passed on home buyers/consumers will not be an issue.
Un-utilized ITC(Input Tax Credit), which has been used as the cost of the project should be removed and should lead to a better price.
Tax structure and tax compliance should become simpler for builders.

Note:
TDR – Transfer of Development Rights
JDA – Joint Development Agreements
FSI – Floor Space Index
ITC – Input Tax Credit

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Union Budget 2019 Highlights

Feb 1,2019 / By Prahalad Singh / No Comment

Union Budget 2019 brings reason to cheers for Real Estate

TDS threshold on rental income raised from Rs.180000 to Rs.240000
The benefit of rollover of capital tax gains to be increased from investment in one residential house to that in two residential houses, for taxpayers having capital gains up to 2 crore rupees, can be exercised once in a lifetime.
Benefit under Sec 80 (i) BA being extended for one more year, for all housing projects approved till the end of 2019-20.
Income tax relief on Notional Rent from unsold houses extended to 2 years.
Moreover, the GST council will take
steps to reduce the tax burden on home-buyers.
A notional rent is applicable to the second house if someone has more than one house, has been waived off, considering the needs of citizens.

For the common man, industrialist, and farmers

Businesses with less than Rs.5 crore annual turnover, comprising over 90% of GST payers, will be allowed to return quarterly returns.
Individual taxpayers with annual income up to Rs.5L rupees to get a full tax rebate. This will provide tax saving of up to Rs 12,500 for all taxpayers.
2% interest subvention on loan of Rs.1Cr for GST registered MSME (The Micro Small & Medium Enterprises) units.
2% interest subvention to farmers pursuing animal husbandry and fisheries.
Mega pension Yojna, namely Pradhan Mantri Shram Yogi Mandhan, to provide assured monthly pension of Rs.3000 per month, with a contribution of Rs.100 per month, for workers in the organized sector after 60 years of age.
Under Pradhan Mantri Kisan Samman Nidhi, Rs.6000 per year for each farmer, in three installments, to be transferred directly to the farmer’s bank account, for farmers with less than 2 hectares landholding.
Individuals with gross income up to Rs.6.5L will not need to pay any tax if they make an investment in Provident Funds and prescribed equities.
Standard tax deduction for a salaried person raised from Rs.40000 to Rs.50000. A standard deduction of Rs.40000 for the salaried class. This additional deduction was proposed in lieu of existing deductions of Rs 15000 for medical reimbursement and Rs 19200 for transport.

In a relief for the common man, most daily-use items are now under 0-5% tax slab under GST.
Gratuity limit increased from Rs 10 lakh to Rs 30 lakh.
75% of woman beneficiaries under PM MudraYojana, 26 weeks of maternity leave and Pradhan Mantri Matritva Yojana, are all empowering women.
In place of rescheduling of crop loans, all farmers severely affected by severe natural calamities will get 2% interest subvention and additional 3% interest subvention upon timely repayment.
The 22nd AIIMS will be set up in Haryana soon.

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