Section 80EE: A Complete Guide to the ₹50,000 Home Loan Interest Deduction

Getting your first salary will be one of the most cherished days of your life. Isn't the excitement of getting your first pay cheque something unique? You feel like you are on top of the world and are eager to fulfil each of your aspirations one at a time. When you talk about dreams, one of the most common dreams for many would be to buy a house. Take Suman as an example. He is an engineer who recently got a well-paying job. His aim was to purchase a home as soon as he began making money. Thus, he started this wonderful journey by taking out a home loan.

However, you may become confused in a sea of intricate regulations as you delve more into the subject of taxes and finance. For those who are taking out home loans, Section 80EE of the Income Tax Act is very helpful. It provides some tax relief to aid in improved money management. What makes this meaningful to you? You might save some money and enjoy a smoother home loan application process if you are aware of Section 80EE.

Want to know more about it? Find out how you can benefit from this section by reading on!
 

What Is Section 80EE Of The Income Tax Act?

First-time homebuyers can take advantage of a great tax discount under Section 80EE of the Income Tax Act. It enables you to claim tax deductions on the interest you pay on the home loan. In particular, you are eligible for a deduction of up to Rs. 50,000 every fiscal year. The best part? This tax relief is something you may take advantage of every year until your house loan is paid off in full.
 

Features And Eligibility Criteria Of The 80EE Deduction

Let’s break it down for you -

Purpose Of The Deduction Under Section 80EE

Section 80EE of the Income Tax Act is intended to provide people with significant tax advantages. It permits you to deduct the interest paid on a loan received from a financial institution for residential property up to a yearly maximum of Rs.50,000. By reducing their taxable income, this deduction primarily attempts to increase first-time purchasers' opportunity for homeownership. Even better, until your loan is entirely repaid, you are eligible to receive this benefit each fiscal year.
 

Conditions To Be Met For Claiming Deduction

You must fulfil the following requirements in order to be eligible for the deduction under Section 80EE of the Income Tax Act -

• The maximum value of the residential property you purchase should be Rs. 50 lakhs, and the total amount of your loan cannot be more than Rs. 35 lakhs.
• A reputable home finance firm or banking institution must approve your loan.
• For the duration that you are repaying the loan, you are eligible to claim this deduction.
• You should not own any other residential property at the time your loan is approved.
   

How Can You Claim Tax Deductions Under Section 80ee Of The Income Tax Act?

Using Section 80EE of the Income Tax Act, you can claim your deduction as follows -

• Get Your Documents Ready:
  Gather the essential documentation, including the property sale deed, loan repayment statements that reflect the interest paid, and the letter of sanction for your home loan.
   
• File Your Tax Return:
  When you are ready to submit your income tax return, use the relevant ITR form, which is usually ITR-2 or ITR-3.
   
• Input Loan Details:
  Make sure you accurately complete the relevant area of the ITR form with the facts of your home loan interest payments.
   
• Stay Prepared:
  Keep all supporting documentation available in case the tax authorities ask to see it. This will help you stay prepared.
   

How To Claim House Loan Interest In ITR?

You can follow this simple procedure -

1. Collect All Required Loan Records
   Arrange all of the necessary paperwork for your home financing first. This contains a complete statement that lists the principal and interest amounts paid throughout the financial year, your loan agreement, and the interest certificate issued by your lender. It is essential to have these records on hand for a precise and efficient filing procedure.
    
2. Find Out Which Are Eligible Tax Deductions
   You can deduct a sum of up to Rs. 2 lakh in interest that you paid on a self-occupied property each year under Section 24(b) of the Income Tax Act. There is an additional benefit if your property is rented out. The deduction for interest payments will not have a cap. To optimise your tax savings, make sure you appropriately compute and claim these deductions.
    
3. Get The Proper Interest Documents
   Verify that you have all the right documents in your hands. Your Form 16 will include information on the interest you paid on your home loan if you are a salaried individual. However, if you own your own business or are self-employed, you will need to ask your lender for an interest certificate. These records are crucial since they contain the numbers you require for your ITR.
    
4. Choose And Complete The Correct ITR Form
   It's now time to choose the appropriate ITR form according to your sources of income. ITR-1 or ITR-2 will be the case for the majority of people. After selecting the relevant form, carefully enter your financial and personal information on it. You can make sure that your return is accurate by taking the time to do this step.
    
5. Report The Interest Paid In The Relevant Section
   In your ITR form, you must enter the interest amount. Find the subsection under Section 24(b) that deals with housing loan interest deductions. Make sure the interest you paid during the fiscal year matches the amounts on your Form 16 or interest certificate when entering the amount. To optimise your tax benefits and accurately claim your deduction, this step is essential.
    
6. Pre-Construction Interest Claim For Properties Under Construction
   You are eligible for a significant bonus if you have taken out a loan for a property that is still under development. Pre-construction interest is allowable to be claimed in your ITR; however, it must be paid in five equal payments. Once your property is completed, you can begin to claim this deduction in that year.
    
7. Utilising The E-Filing Portal, Submit Your ITR
   The next step is to confirm every detail. Verify that all of the numbers are correct and that each section is finished. When you are prepared, use the Income Tax Department's electronic filing system to submit your ITR.
    
8. Preserve All Necessary Documents
   Lastly, it is imperative that you keep all of your supporting documentation. Your loan statements, interest certificates, and certificates of property possession are all included in this. Keeping these records on file is crucial for your records and will come in handy if you ever have to face an audit.
    

Categories Of Groups Or Persons Who Cannot Access Tax Benefits Under Section 80EE

It's critical to understand who is not qualified for the tax benefits provided under Section 80EE of the Income Tax Act. These deductions do not apply to trusts, Hindu Undivided Families (HUFs), or Associations of Persons (AOPs). Furthermore, you cannot claim the deduction if your spouse is the only owner of the property in question unless they are also a co-borrower or co-owner.
 

How Section 80EE Complements Section 24(b)?

First, let's understand the two sections correctly. They have different roles, but they're on the same team.

Section 24(b)

This is the deduction for home loan interest. If you've taken a loan for a house property, you can claim a deduction of up to Rs. 2,00,000 on the interest you pay every year, provided that the property is self occupied. It’s straightforward, reliable, and available to almost every homeowner with a loan. There’s no special "first-time" requirement here. And for a let-out property, there is no upper limit on interest deduction under Section 24(b).

Section 80EE

This one is specifically for first-time home buyers. It’s like a welcome gift from the tax department. But it has some specific rules: the home loan must be sanctioned between specific dates (April 1, 2016 to March 31, 2017), the value of the property should be below Rs. 50 lakh, and the loan amount should be under Rs. 35 lakh. If you tick these boxes, you get an additional deduction on your home loan interest. Remember that on the date of sanction, the buyer must not own any other residential property and the deduction is only available under the old tax regime.

So, how do they work together?

It’s simpler than you think. You don't have to choose one over the other. Section 80EE doesn't replace Section 24(b); it tops it up.

Here’s how:

• You first claim your deduction under Section 24(b). You use this to cover the bulk of your annual home loan interest, up to its limit of Rs. 2,00,000.
• If the interest you've paid exceeds what you've claimed under Section 24(b), you can then tap into Section 80EE.

Think of it like this: Section 24(b) is your main course, and Section 80EE is a delicious dessert you get to enjoy only if you meet the criteria.
 

How Much Deduction Can You Actually Claim?

Let's talk numbers and see how this combination plays out in real life. The most important thing to remember is the cap. The deduction under Section 80EE is capped at Rs. 50,000. And it's only for the interest component of your loan, not the principal.

Let’s look at an example to make it crystal clear:

Say you are a first-time home buyer. In a financial year, you paid Rs. 2,30,000 as interest on your home loan.

• Step 1: Claim Section 24(b)
  You immediately claim the standard deduction of Rs. 2,00,000 under Section 24(b). This covers the first chunk of your interest.
• Step 2: Check the Balance
  Now, you have Rs. 30,000 of interest remaining (Rs. 2,30,000 - Rs. 2,00,000 = Rs. 30,000).
• Step 3: Apply Section 80EE
  Since you are eligible for Section 80EE, you can now claim this remaining Rs. 30,000 as an additional deduction. The Rs. 50,000 cap is more than enough to cover this.

Your Total Deduction:

Section 24(b): Rs. 2,00,000 + Section 80EE: Rs. 30,000 = Rs. 2,30,000

You have successfully deducted your entire interest payment from your taxable income! Now, what if your interest was even higher?

Let’s now take a look at another scenario:

• Your total annual interest is Rs. 2,70,000.
• Section 24(b): You claim Rs. 2,00,000.
• Remaining Interest: Rs. 70,000.
• Section 80EE: You can only claim up to its cap of Rs. 50,000.

Your Total Deduction:

Section 24(b): Rs. 2,00,000 + Section 80EE: Rs. 50,000 = Rs. 2,50,000

In this case, you can't claim the full Rs. 70,000 excess, but you still get a fantastic additional Rs. 50,000 deduction, bringing your total interest-based tax savings to Rs. 2.5 lakhs.
 

Difference Between Section 80EE And Section 24

Listed below are a few of the differentiations between the two sections -

FAQs