A new deduction u/s 80EEA for interest paid on housing loan in order to incentivize the purchase of affordable housing. Deduction under section 80EEA has been proposed by the Finance (No. 2) Bill, 2019 to provide for deduction with respect to interest on housing loan acquired on or after April 1, 2019. The amount of deduction is over and above the limit available under section 24(b) with respect to interest which is Rs. 2,00,000.
The objective of this deduction is to provide an impetus to the ‘Housing for all’ objective of the Government and to enable the home buyers to have low-cost funds at their disposal.
As per the proposed section, deduction up to Rs. 1,50,000 shall be allowed to an individual for the interest paid on loan taken for acquisition of a residential house property provided he does not claim deduction with respect to such interest under any other provision of the Act.
The salient features of section 80EEA are given below:
- a) Deduction is available to individual taxpayers only.
- b) Interest is payable on loan taken from any financial institution for the purpose of acquisition of a residential house property.
- c) Maximum amount of deduction permissible is Rs.1,50,000 for the assessment year 2020-21 and subsequent assessment years.
- d) Loan should be sanctioned by the financial institution during the period April 01, 2019 to March 31, 2020
- e) Stamp duty value of the house property should not exceed Rs. 45 lakhs
- f) The assessee should not own any residential house property on the date of sanction of loan.
- g) The assessee shall not claim benefit with respect of such interest under any other provision of the Act such as Section 80EE or Section 24(b).
It must be noted that in order to claim the benefit of Section 80EEA, all the conditions stated above are to be satisfied cumulatively.
The term ‘financial institution’ would mean a banking company to which the Banking Regulation Act, 1949 applies or a banking Institution referred to in section 51 of that Act or a housing finance company. The ‘housing finance company’ means a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.
Conditions with respect to the carpet area of the house property. These conditions have been specified in the memorandum to the finance bill, but not mentioned in section 80EEA:
- Carpet area of the house property should not exceed 60 square meter ( 645 sq ft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)
- Carpet area should not exceed 90 square meters (968 sq ft) in any other cities or towns.
- Further, this definition will be effective for affordable real estate projects approved on or after 1 September 2019
- Section 80EEA has been introduced to further extend the benefits allowed under Section 80EE for low-cost housing. Earlier, Section 80EE had been amended from time to time to allow a deduction for interest paid on housing loan for the FY 2013-14, FY 2014-15, and FY 2016-17.
- The section does not specify if you need to be a Resident to be able to claim this benefit. Therefore, it can be concluded that both Resident and Non-Resident Indians can claim this deduction.
The section also does not specify if the residential house should be self-occupied to claim the deduction. So, borrowers living in rented houses can also claim this deduction. Moreover, the deduction can only be claimed by individuals for the house purchases jointly or singly. If a person jointly owns the house with a spouse and they both are paying the installments of the loan, then both of them can claim this deduction.
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