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Simar Nagi | 08 Dec 2022

Section 80 EE- Get Ready To Save Income Tax On Home Loan!

Section 80 EE- Get Ready To Save Income Tax On Home Loan!

It is said that the interpretation of dreaming about buying a house is that you are at that stage of life where you are happy, or it is an indication that a great positive change is coming your way. Nevertheless, there is nothing to hide about this reality that many of us dream of buying a house where we can grow old with our loves. But the sad reality that hits along with that is the requirement of huge finance. Many real estate experts believe that it is good to take a home loan as it is the biggest tax-saving instrument, all thanks to the number of tax deductions available under 80 EE of the Income Tax Act. Dive in to understand how to save income tax on home loan interests.

Face it or not, the tax deduction is the most common form of tax benefit. There are two purposes for which one takes a home loan, i.e. buying a house and saving money on tax which is supposed to be paid at the end of the financial year. The government of India offers certain home loan tax benefits to encourage people to buy their homes. 

What is 80 EE?

Section 80 EE was first introduced in the financial year of 2013-14 for taxpayers to avail of a tax deduction on interest on home loans. At the time it was introduced, only Rs 1,00,000 maximum deduction could be claimed. The section was reintroduced in the financial year 2016-17. Section 80 EE of the Income Tax Act 1961 enables income tax benefits on the interest portion of the home loan that can be availed from any financial institution. Because of this section, you can claim a deduction of up to Rs 50,000 per financial year. You have the liberty to claim this deduction until you have fully repaid the loan. The amount can also be claimed beyond the deduction of Section 24, i.e. Rs 2,00,000 and Section 80 C of Rs 1,50,000, respectively. 

What is the eligibility to claim section 80 EE Deduction?

A taxpayer who wishes to become eligible for claiming an 80 EE deduction has to make sure of the following points-

  • A taxpayer can claim the deduction under Section 80 EE on properties bought either singly or jointly. If you have purchased a property with your spouse and are paying instalments of the loan, then both of you are eligible to claim this deduction individually. 

  • E tax benefits are not applicable for HUF, AOP, companies, trusts etc. 

  • Only first-time house buyers can claim the tax benefits that come along with this section.

  • You have to take a loan from a financial institution to claim a deduction or buy residential property. 

  • Section 80 EE is not applicable on a property basis but on a per-person basis. 

  • If you wish to claim a deduction, you need to reside on that property. Nevertheless, borrowers residing in rented homes also have the liberty to claim this deduction. 

How much can you claim Section 80 EE deduction?

You can claim a deduction under 80 EE when you file tax returns. Here is all that you need to do-

  • Calculate the amount of interest you have paid during a financial year on a home loan.

  • Once you have got the total interest amount, you can claim a deduction up to Rs 2 lakhs ( under Section 24 Income Tax, 1961). 

  • The rest amount up to Rs 50,000 can be claimed under Section 80 EE. 

What are the Tax Benefits of a Home Loan?

The Union Minister announced that the old income tax rebates will stay applicable on home loans until 2024. This means you will get to enjoy the following benefits-

  • Deduction on Repayment on Principal Amount 

  • The two components of EMI that you must be very well aware of are the principal amount and interest amount. Section 80 C of the Income Tax Act 1961 states that you have the right to avail of house loan tax exemption on the amount which you have repaid if the property is self-occupied. But if it is the second home you bought by taking a home loan and occupied by yourself or rented out, you still will be receiving housing loan tax benefit up to Rs 1.5 Lakh. 

Remember: You can avail of the tax benefits on stamp duty and registration only once. 

Deduction on Payment of Interest Amount 

Section 24 of the Income Tax Act states that you are eligible for the home loan interest deduction. If you have occupied the property, you can claim a home loan tax exemption on the interest value up to Rs 2 Lakh. But in case you possess another home, then the tax deduction for both the homes should be up to Rs 2 lakh. 

Deduction on home loan interest rates in the pre-construction case

According to Section 24b of the IT Act, a taxpayer will not be allowed to claim the advantage of interest deduction until and unless the construction of the property is fully completed. The interest of the pre-construction period can be claimed as a deduction in five equal instalments commencing from the time the house got fully constructed. 

Deduction in a Joint Home Loan 

If you and your partner apply for a home loan jointly, you both can benefit from a tax deduction on the principal amount that is up to Rs 1.5 Lakh each as stated in Section 80 C and on the interest amount, you can have up to Rs 2lakh each. 

Are there any additional tax benefits on a home loan?

As per the Section 80 EE, if any person has taken a home loan in the year 2016-17 of Rs 35 Lakh or less and the actual cost is more than this, i.e. up to Rs 50 Lakhs, then the person will become eligible for an additional deduction of Rs 50000 long with Rs 2 lakh deduction. 

What is the deduction on affordable houses?

Under the Section 80EEA, one has to qualify the below-stated conditions in order to avail of an extra deduction of Rs 1.5 lakhs-

  • The value of the stamp should not exceed Rs 45 Lakhs. 

  • The time period of the loan being sanctioned should be between 01.04.2019 and 31.03.2022

  • The buyer, himself/herself, should be entitled to be the first holder of the property.

Steps to avail of income tax benefits on a home loan

After comprehending the above-stated points, you should confirm the following things in order to avail tax benefits.

  • Registration of property should be by your name. 

  • Complete construction of the property is necessary 

  • Required home loan documents mandatory for submission 

  • Certificate from bank depicting the break up of the principal and interest paid during the year.

  • Adjustment of TDS on the agreement value should be performed. 

When you receive a rebate in income tax on a home loan, you can save a lot and will encounter less burden when paying off the cost of a home loan. 

Also read: Tips on How to Save Money for Buying a House


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