The Government of India sanctioned the construction of an additional 1.68 lakh housing units under its Pradhan Mantri Awas Yojana Urban scheme. With this, the total sanctioned units now stand at 1.1 crore. Besides increasing the number of projects under construction, the government has also implemented attractive tax deductions for beneficiaries of such affordable housing.
- The Union budget, 2019, introduced Section 80EEA of the ITA, which allowed individuals to deduct up to Rs.1.5 lakh from their taxable income. This benefit was linked to the interest portion of a home loan under the affordable housing scheme.
- During Budget 2021, Section 80EEA benefits were extended until March 31st, 2022, from its earlier deadline of March 31st, 2021.
Understanding Section 80EEA in detail
After undergoing the home loan process, borrowers start to bear principal and interest through each EMI. Under Section 80EEA, those opting for loans under affordable housing schemes in India can deduct their yearly housing credit interest liabilities from their taxable income. The upper limit for this deduction is Rs.1.5 lakh per year.
Therefore, if an individual�s taxable income is Rs.3 lakh and he/she bears home loan interest of Rs.50,000 in the same year, his actual taxable income would be,
Rs.3 lakh � Rs.50000 = Rs.2.5 lakh
Thus, the amount of tax deduction one can claim under this particular section of the Income Tax Act depends on his/her home loan rates. Moreover, this deduction is beyond the Rs.2 lakh interest deduction, which is available under Section 24. Theoretically, a borrower can end up reducing taxable income by up to Rs.3.5 lakh based on yearly home loan interest payments.
Eligibility criteria to claim Section 80EEA benefits
Individuals would need to fulfil the following requirements to claim Section 80EEA related benefits �
- The applicant in question should be an individual. Thus, companies, AOP, HUFs and partnership firms are disqualified from claiming these deductions.
- A borrower should not own any other property on the loan sanction date, anywhere in India.
- Stamp duty valuation for the concerned property should not exceed Rs.45 lakh.
- Section 80EE beneficiaries are disqualified from availing benefits under Section 80EEA.
- The carpet area of the concerned property should not exceed 645 square feet in metropolitan cities. However, in other cities or towns, it can range up to 968 square feet.
Thus, when you apply for home loan, ensure you keep such factors in mind. Borrowers must know everything about saving taxes when they avail a home loan.
Other tax benefits for home loan borrowers
Section 80EEAis just one of the avenues to reduce tax liabilities for home loan borrowers. The Income Tax Act offers to reduce taxable income further under two other distinct sections.
As mentioned previously, Section 24 allows for tax deductions of up to Rs.2 lakh on home loan interest payments. Nevertheless, to claim such deductions, the concerned property�s construction must be completed within five years of loan disbursal. Failing that, tax deductions are limited to just Rs.30000. Thus, Section 24 has all the necessary provisions for home loan tax benefits for under-construction property.
This particular section offers tax reprieve based on home loan principal repayment. You can claim a benefit of up to Rs.1.5 lakh on the yearly principal repayment sum. This amount can also include stamp duty and registration charges. However, these additional costs can be included only in one assessment year.
Tips to reduce the cost of home loans
While claiming tax benefits helps an individual cope with the financial burden of home loan repayment, he/she can also undertake a few other steps to service dues effectively.
Meet all eligibility criteria
Home loan eligibility parameters vary from one lender to another. Nevertheless, the easiest way to acquire such credits at favourable terms is to not only meet the eligibility requirements but to surpass them. Specialised tools available online can help you calculate home loan eligibility in a few clicks.
Search for better rates and opt for refinancing
A home loan balance transfer allows borrowers to shift their existing principal amount outstanding to different housing finance companies. One undertakes this process to avail lower rates and other attractive terms. Nevertheless, refinancing a loan requires thorough knowledge of the credit�s amortisation schedule to know the most opportune time for the same.
To ease the application process and save time, borrowers can also take advantage of pre-approved offers. These offers are available on home loans, loan against property and more. Individuals can check their pre-approved offer by submitting some details, such as name and contact information.
Additionally, an applicant should also keep his/her credit score around the 750 mark to avail best home loan offers without hassle.