As a new homeowner, you stand to get a tax deduction on your home loan. All first-time home buyers in India can avail of this benefit under two laws, namely, section 80EE and 80EEA. As a person who has purchased a house property for the first time, you can claim tax deduction benefits amounting to INR 1,50,000 adding to the deduction of an amount of INR 2,00,000 according to Section 24 (B) against the yearly payment of interest with regard to your home loan.
How to save taxes on home loans using section 80EEA?
Here are a few ways you can use section 80EEA to save taxes on home loans:
- Know What ‘Affordable Property’ Is
It is easy to be misled into thinking that you can save up to Rs 1.5 lakhs annually without understanding the terms and conditions adequately. The budget of 2019 introduced section 80EEA for all first-time homeowners to help them save on their taxes. But an important aspect of this new provision was that the additional savings will only be liable on what classifies as an ‘affordable property.’
As per the regulation, the price as well as the square footage of the property factor in when you buy a property for the first time and require additional savings. So before buying, consider the following conditions:
- The property you are buying should not be worth more than 45 lakhs.
- The square footage of the property should not exceed 645 sq ft in a metropolitan city.
- The square footage in any other area except metropolitan cities should not exceed the limit of 968 sq ft.
- Know Your Eligibility
After you have considered the terms and conditions related to affordable property, you need to check if you are eligible to get a deduction under 80EEA. The eligibility hinges on an individual who is a first-time homeowner. If you do not have any property under your name, you are eligible for the deduction.
The best provision about this is that even if you are a working adult living with parents, you will be considered a separate household. If you are a family or buying under a company’s name, you will not be able to avail the benefit of this deduction. You do need to be married to claim this deduction either. But keep in mind that this deduction will solely be used to save taxes on home loan interest.
- Know The Restrictions
Claiming the deduction and being eligible for it are the preliminary factors that will allow you to make effective use of section 80EEA. But we recommend knowing the limitations to manage expectations. The major limitations you need to be familiar with are as follows:
- The deduction will only be applied for the purchase of a residential property.
- Claiming the benefit will only be possible if the home loan is for buying and not for construction or repair.
- Any buyer already claiming benefit under section 80EE is not eligible for this deduction.
- The stamp value of the property should not exceed the net value of 45 lakhs.
- The home loans against property should have been sanctioned between the period from April 1st (2019) to March 31st (2022).
- If you are a Non-Resident Indian or NRI, you can claim this deduction. It is not explicitly prohibited for NRIs which makes experts widely accept that they can avail the benefits.
The Takeaway
Any individual who is currently working is eligible for the deduction under section 80EEA as long as they already do not own a property. You can effectively use this deduction to save taxes on your home loan if you know what type of property falls under the ‘affordable’ category. Knowing the details of your eligibility as well as the limitations are also equally important.