Deduction under Section 80EE of Income Tax Act

The Union Finance Minister in the latest Finance Bill has inserted a new section 80EE of the Income Tax Act dealing with additional deduction regarding interest on home loan. Assessees can take the benefits of this section on and from the financial years 2014-15 and 2015-16.

Object of introducing the section:

The Purpose of introducing this section is to encourage house ownership as well as to promote industries manufacturing building materials such as iron bars, cement, brick, wooden articles, etc. providing jobs to hundreds of labors.

Who can avail such benefit?

Benefits under section 80EE of the Income Tax Act can be availed by individual assessees. This kind of deduction is not available for other types of assessees such as HUF, company, etc. However the assessee may be a resident or a Non-resident.

Conditions to be fulfilled for availing such benefits:

Assessees can avail benefit under section 80EE if all the following conditions are fulfilled:

1. The assessee has to be an individual.
2. He should borrow a loan.
3. Loan should be taken for purchasing a residential house.
4. The purchaser has to be first time buyer. In other words, he should have never purchased any other residential house before at any point of time.
5. The value of the residential property should be less than Rs.40 lakh.
6. Loan should be taken by people for purchasing a house worth less than Rs.25 lakh.
7. The assessee should not have any other personal residential house.
8. Loan should be availed from a Financial Institution or Housing Finance Company.
9. Loan should be sanctioned within a period between 01.04.13 and 31.03.14.

Amount of deduction:

An individual can avail deduction under the provisions of section 80EE on the interest payable by him on account of home loan up to a limit of Rs.1 Lakh in the financial year 2014-15. Deduction can be claimed in two successive assessment years. In other words, in case the total amount of interest is not claimed as deduction in the financial year 2014-15, then the balance amount can be claimed in the financial year 2015-16.

The total amount of deduction claimed under this section should be less than or equal to Rs.1 lakh. So if an assessee takes a loan for purchasing a residential house  and the interest payable by him amounts to Rs. 1,00,000/- for the assessment year 2014-15, he can claim deduction of Rs.80,000/- in the assessment year 2014-15 and the remaining balance i.e. Rs. 20,000/- in the assessment year 2015-16.

Relation of section 88EE with Section 24:

According to the Finance Bill, 2013 section 88EE gives an additional deduction of interest on house loan for purchasing residential property over the deduction allowed under section 24(b) of the Income Tax Act. This kind of deduction is in addition to the deduction amounting up to Rs. 1, 50,000/- for the interest on loan under section 24(b).

As such, an assessee can claim separate deduction under section 24 of the Income Tax Act for the house loan taken by him.

How to avail deduction under section 80EE?

One can produce a certificate from which financial institution he has taken the loan to the HR and avail a deduction on his TDS. He may also claim deduction u/s 80EE while computing his income at the time of filing return