Getting a home loan is a big step, one that has the power to bind you financially for years. When someone looks for a home loan, they try to find the best interest rates on it, as a low-interest rate can significantly change their repayments. That is one way of saving money on a home loan. The other way of saving money is by claiming tax deductions under section 80EE of the Income Tax Act. Let’s first understand what exactly is this Section 80ee.
What is sec 80EE of the income tax act?
Sec 80EE of the income tax act allows home loan borrowers to claim tax benefits on the interest paid for their loans. The scheme was initially introduced in the financial year 2013-14 for individual taxpayers with a maximum deduction limit of INR 1,00,000. However, the tax benefit cap was reduced to INR 50,000 when the scheme was reintroduced in 2016-17. So presently, a taxpayer can only claim maximum deductions of INR 50,000 on the interest paid towards their housing loan.
Who are eligible to claim deductions under this section?
Mentioned below is the list of taxpayers who can claim deductions under section 80EE income tax:
- The individual doesn't need to live on the property to claim deductions on the interest rate paid on its loan; someone who is living in a rented home will also be eligible to get tax benefits on their purchased property.
- Groups such as HUF (Hindu United Families), AOP (Association of Persons), etc., are not eligible to avail of tax benefits on their loans. Only individuals or people who have taken a joint loan can proceed with the claim.
- These tax deductions can also be claimed by assessees who do not have residential real estate under their name on the date their loan gets sanctioned.
Conditions to be fulfilled to apply for a claim under section 80EE
Mentioned below are the prerequisites for filing a claim under section 80ee of the income tax act:
- The borrower should not have any other property under his name on the date of loan sanction
- The purchase value of the real estate should not be greater than INR 50 lakh
- The tax deductions under this scheme can only be availed on the first home purchase
- If the property involved has been purchased for commercial usage, it will not be eligible to claim deductions
- Only the borrowers whose total housing loan amount stands at INR 35 lakh or less section 24 of the income tax actare eligible to avail of these benefits
- For this provision to apply, the loan's approval date must fall between April 1, 2016, and March 31, 2017.
Section 80EE income tax - How to claim deductions?
Under section 80EE income tax, you will be required to calculate the interest paid in a financial year toward your housing loan. Once you have made the calculations, proceed to claim a deduction under . Section 24 allows you to claim up to INR 2 lakh on a self-occupied property. You can further claim a deduction of up to INR 50,000 under section 80EE once you have exhausted the limit of the section 24 deduction.
In case you are wondering how you calculate the interest rate paid in a financial year on your home loan, it has been discussed below.
How to calculate tax benefits to file a claim
The formula used to calculate the interest paid on loan is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
P stands for the loan amount,
R stands for the percentage of interest,
and N denotes the tenure of the loan
To file a claim under section 80EE, you must calculate the interest paid on loan. First, you will easily be able to do this with the help of the mentioned formula. If you do not want to carry out manual calculations, you can also take the help of the online calculators available on the websites of different lenders. Those calculators are easy to use and get the job done within a few seconds.
Sec 80EE of the income tax act was introduced to enable taxpayers to get benefits on the interest paid against their home loans. An individual can file for this claim after they have exhausted the limit for the section 24 tax deductions. Sec 80EE helps taxpayers get a tax deduction of up to INR 50,000 on their first home purchase.