Tax Benefits: Deductions under section 24b, 80EE & 80EEA

Deductions under section 24b, Section 80EE and Section 80EEA: In respect of the Interest on Borrowed Capital/Housing-Loan under the Income Tax Act, 1961

This article aims to provide a comprehensive understanding of the deductions available under Sections 24b, 80EE, and 80EEA of the Income Tax Act, 1961. These sections pertain to the interest on borrowed capital or housing loans, offering taxpayers a way to optimize their tax liabilities. It’s crucial to comprehend the nuances of each section to make informed decisions while seeking these tax benefits.

Hence, for the purpose of availing the correct and maximum benefit of the said deductions, the provisions must be perfectly clear. Also, it is an important to make a note that, these deductions are mutually exclusive, hence, a taxpayers should consider the provisions as per the respective section only, and not in overlapping manner under any other section of the said Act, although being well aware of the fact that if the benefit under any of the section is availed by him/her, then the same benefit cannot be availed under any other section of the said Act, in the same and succeeding assessment years as per the provision of the I.T. Act, 1961.

1. Section 24b: (Interest on Borrowed Capital or a Housing Loan):

Interest paid or payable on the borrowed capital/housing loan for the purchase or an acquisition, a construction or a re-construction, a repair or a renewal, etc., then under this section deduction is allowed as per the I.T. Act, 1961.

Important is to be clear with the provisions under this section, while calculating income under the head house property, because there is bifurcation, in terms of the let-out or deemed to be let-out and a self-occupied house-property tax provision:

A. Tax provision in case of Let-out or Deemed to be Let-out house property:

No maximum limit is there in respect to the interest on loan on borrowed capital/housing loan:

• Current Year Interest – Any interest on loan of the current year, taken for the purchase or an acquisition, a construction or a re-construction, a repair or a renewal, etc., is allowed as full deduction.

Situation-I, Suppose, the loan is taken and outstanding during the previous year rupees 10.0 Lakhs and the interest is @8% p.a., therefore, interest amount of rupees 80,000 (Rs. 10.0 Lakhs x 8%) will be fully allowed as deduction under this section.

Situation- II, Suppose, the loan amount was taken of rupees 11.0 Lakhs and the rate of interest was @8% p.a., but before the beginning of the previous year itself, rupees 3.0 Lakhs was repaid, then the interest deduction on the balance outstanding amount of rupees 8.0 Lakhs (i.e., Rs. 11.0 Lakhs – Rs. 3.0 Lakhs), rupees 64,000 (Rs. 8.0 Lakhs x 8%) will be allowed as deduction under this section.

Situation-III, Suppose, the loan amount was taken of rupees 10.0 Lakhs and the rate of interest was 8%p.a., but before the beginning of the previous year itself, rupees 4.0 Lakhs were already repaid and on the last day of seven month in the previous year itself, again rupees 3.0 Lakhs repaid, then interest deduction under this section will be = (Rs. 6.0 Lakhs x 8% x 7/12 = Rs. 28,000) + (Rs. 3.0 Lakhs x 8% x 5/12 = Rs. 10,000) = Rs. 38,000 (Rs. 28,000 + Rs. 10,000).

• Pre-acquisition or a Pre-construction Period Interest – Interest on loan for pre-acquisition or a pre-construction period shall be allowed as deduction in Five Equal-Instalments or @20%, beginning from the previous year in which the house is acquired or the construction is completed.

These terms Pre-acquisition period and a Pre-construction period means, the period beginning from the date of borrowing/loan and ending on 31^st March, immediately preceding to the year of the acquisition or a construction of such house-property.

Situation – I, Suppose, Mr. MSD has taken a loan on 01-04-2017 for construction of a house and the construction was completed on 31-10-2021. So, the pre-construction period shall be considered, starting from 01-04-2017 up to 31-03-2021 only, the previous year in which the house got constructed, the fractional-months from 01-04-2021 to 31-10-2021 (i.e., 7 months) will be not included while calculating a pre-construction period as per the provision of the said Act.

Situation – II, Suppose, Mr. Kohli has taken a loan of Rs. 10.0 Lakhs @8% interest p.a. for the construction of the house on 01-04-2016 and construction got completed on 31-07-2019, then in this case, interest on loan for pre-construction period will be Rs. 2.40 Lakhs (i.e., Rs. 10.0 Lakhs x 8% x 3 years (2016-17, 2017-18, 2018-19)), and this pre-construction period interest will be allowed in Five Equal-Instalments or @20%, that is, Rs. 48,000 (i.e., Rs. 2.40 Lakhs x 1/5) starting from the assessment year 2019-20 up to assessment year 2023-24.

B. Tax provision in case of Self-occupied house property:

The Net Annual Value (NAV) is taken as Nil in the case of the self-occupied house/houses property, therefore, there is no question about the standard deduction u/s 24a, but interest on loan taken for the purpose of purchase or a construction, a repair or a renovation, etc., of the 2 house properties is allowed as deduction u/s 24b and deducted from the NAV, and accordingly, the resultant figure will be the loss only under the head of Income from self-occupied House-Property, which is entitled to be set-off from the profit of the let-out house-property (if any) or if there is no profit is available under this head, then from the other heads of income (up to Rs. 2.0 Lakhs only) in the same previous year and the balance of loss shall be carried-forward up to 8 succeeding assessment years which can be set-off from the Income from House-Property only as per the provision of the I. T. Act, 1961.

Situation – I, Suppose, a loss occurred of Rs. 30,000 from a Self-occupied property – I in the Previous year 2022-23 and in the same previous year, there were the profit of Rs. 45,000 from the Let-out property -II, then in this case, loss of Rs. 30,000 will be set-off in the same previous against the profit of Rs. 45,000 from the same head of the income of house property and accordingly, net resultant profit will be Rs. 15,000 only (i.e., Rs. 45,000 – Rs. 30,000) under this head.

Situation – II, Suppose, a loss occurred of Rs. 30,000 from a Self-occupied houses – I & II collectively in the Previous year 2022-23 and in the same previous year, there were the profit of Rs. 25,000 from the Let-out property -III, and also profit of Rs. 15,000 in the other head of income, then in this case, loss of Rs. 25,000 will be firstly set-off in the same previous against the profit of Rs. 25,000 from the same head of the income of house property and balance of loss of Rs. 5,000 (i.e., Rs.30,000 – Rs. 25,000) will be set-off from the profit of the other head of income, accordingly, nothing from the loss from self-occupied houses are required to be carried forward to be set off in the subsequent assessment years as all the losses had been set-off in the same previous year only, as per the provision of the I. T. Act, 1961.

Situation – III, Suppose, a loss occurred of Rs. 3,30,000 from a Self-occupied houses – I & II collectively in the Previous year 2022-23 and in the same previous year, there were the profit of Rs. 1,25,000 from the Let-out property -III, and also profit of Rs. 50,000 in the other head of income, then in this case, loss of Rs. 3,30,000 will be firstly set-off in the same previous against the profit of Rs. 1,25,000 from the same head of the income of let-out house property and balance of loss of Rs. 2,05,000 (i.e., Rs.3,30,000 – Rs. 1,25,000) will be set-off from the profit of the other head of income to the extent of profit available of Rs. 50,000 (subject to maximum up to Rs. 2.0 Lakhs only), since the income of other head of income is also insufficient to be set-off the balance of the losses in the same previous accordingly, balance of loss of Rs. 1,55,000 (i.e., Rs. 2,05,000 – Rs. 50,000) can be carried forward to be set off to the extent of the maximum of 8 subsequent assessment years to be set-off with the income from house-property only, as per the provision of the I. T. Act, 1961.

Moreover, as per the provision of the I. T. Act, 1961, the maximum limits for the interest on loan deduction will be:

i. If loan is taken up to 31^st March, 1999 or before 1^st of April, 1999: The maximum deduction under this section will be up to Rs. 30,000 only if the loan is taken up to 31^st March, 1999 or before 1^st of April 1999, for an objective or a purpose of the purchase or a construction, a repair or a renovation or an extension of such self-occupied house property.

ii. If the loan is taken on or after 1^st April, 1999: The maximum deduction under this section will be up to Rs. 2.0 Lakhs only if the loan is taken/acquired on or after 1^st April, 1999, for purpose of the of purchase or a construction, a repair or a renovation or an extension of a self-occupied house property, provided the below mentioned other conditions are duly satisfied:

• The purchase or an acquisition or a construction of the self-occupied house-property (maximum for 2 self-occupied house-property) must be completed within the period of 5 years from the end of the financial year in which loan/capital was borrowed; and
• The borrower must have to obtain a certificate from the lender signifying the amount of interest payable on such loan and also the purpose of loan, whether the loan was taken for purchase or a construction of house/houses or for the re-finance, for the purpose of re-payment of the previous/earlier loan taken for the purchase or a construction of the house or houses.
• Important to note that, if the loan is taken for the repairs etc., or a purchase or a construction of house-property, it is to be completed within the period of 5 years, otherwise the maximum deduction will be allowed only up to Rs. 30,000 and not Rs. 2.0 Lakhs as per the provision of the I. T. Act, 1961.

C. Summary in brief regarding Interest on Borrowed Capital/Housing Loan:

Let-out / Deemed to be Let House-Property

Self-occupied House or Houses

. No Limit – Full amount of interest deductible · Loan Purpose – For the purchase or a construction, a repair or a renewal

· Loan taken up to 31st March, 1999 or before 1st April, 1999: Maximum Limit – up to rupees 30,000 Purpose of Loan – For purchase, or a construction, or a repair, etc. Required condition – Certificate from the lender signifying required details as per the I. T. Act, 1961 · Loan taken on or after 1st April, 1999: Purpose of Loan – For the purchase or a construction Maximum Limit – rupees 2.0 Lakhs Required condition – Construction must be completed within 5 years; and Certificate from the lender signifying required details as per the I. T. Act, 1961 Important to note that, if the loan is taken for the repairs etc., or for the purchase or a construction of house-property, it must be completed within the period of 5 years, otherwise the maximum deduction will be allowed only up to the extent of Rs. 30,000 only and not Rs. 2.0 Lakhs.

2. Section 80EE: (Interest on borrowing/Loan for Residential House Property to First-Time Buyer/Purchaser):

A. Eligibility and requisite conditions u/s 80EE:

• This deduction is available to an individual taxpayer, for interest on borrowing/loan borrowed/taken from any financial-institution, such as, banks or a housing finance company, etc., for the first-time purchasing/buying a residential house property.
• On the date of sanction/approval of the loan, a buyer or a purchaser must not owning any other residential house-property, as this deduction is exclusively available for the first-time buyer of the residential house property.
• The borrowing/loan must have been sanctioned/approved by the financial institution between the period beginning/starting from 1^st of April, 2016 up to 31^st March, 2017. Important to understand that, this date and period is of the sanction of loan, not the date of an application for the loan.
• The amount of loan sanctioned/approved from the financial institution for the purpose of the buying/purchasing/acquisition of the such residential house property must be not exceeding rupees 35 Lakhs.
• The value of the such residential house-property must be not exceeding rupees 50 Lakhs.
• The benefit/advantage of the deduction will be allowed up to the repayment of loan.
• Importantly, if the benefit of this interest deduction allowed under this section, then in respect of such interest, deduction will not be allowed under any other section of the I. T. Act, 1961, in the same or any other succeeding assessment years, as the same benefit cannot be availed by the taxpayers twice or manifold.

B. Quantum of Deduction u/s 80EE:

Deduction under this section is allowable least of the following beginning on 01-04-2017 and subsequent assessment years:

i. Amount of interest payable/paid in actual for the previous year,

Or,

ii. Maximum of Rs. 50,000.

Situation – I, Suppose, an actual amount of interest payable/paid is Rs. 45,000, then full amount of Rs. 45,000 will be allowed as deduction.

Situation – II, Suppose, an actual amount of interest paid/payable is Rs. 50,000, then full amount of Rs. 50,000 will be allowed as deduction.

Situation – III, Suppose, an actual amount of interest paid/payable is Rs. 55,000, then it will be restricted to the maximum of Rs. 50,000 only.

Hence, the amount of deduction under this section will be less than or equal to Rs. 50,000 only, but it cannot be more than Rs. 50,000.

3. Section 80EEA: (Interest on Loan acquired/taken for Affordable Residential House Property in case of First-Time Home Buyers):

A. Eligibility and requisite conditions u/s 80EEA:

• This deduction is available to the individual taxpayers, for interest on loan taken/acquired for purchasing/acquiring an affordable residential house-property for first time.
• On the date of sanction/approval of borrowing/loan, an assessee must be not owning any other residential house-property, as this deduction is exclusively available for the first-time buyer of an affordable residential house-property.
• The loan must have been sanctioned/approved by the financial institution between the period starting from 1^st of April, 2019 up to 31^st March, 2022. Important to understand that, this is the date and period is of the sanction of loan, not the date of an application for the loan.
• The taxpayer is not eligible for claiming deduction u/s 80EE.
• The value of the stamp duty of the house property, must be not exceeding rupees 45.0 Lakhs.
• Importantly, if the benefit of this interest deduction allowed under this section, then in respect of such interest, deduction will not be allowed under any other section of the I.T. Act, 1961, in the same or any other succeeding assessment years, as the same benefit cannot be availed by the taxpayers twice or manifoldly.

B. Quantum of Deduction u/s 80EEA:

Deduction under this section is allowable least of the following, beginning on 01-04-2020 and subsequent assessment years:

i. Actual amount of interest payable on the amount of loan taken,

Or,

ii. Maximum of Rs. 1,50,000,

Situation – I, Suppose, the actual amount of interest payable is Rs. 1,49,000, then full amount of Rs. 1,49,000 will be allowed as deduction.

Situation – II, Suppose, the actual amount of interest payable is Rs. 1,50,000, then full amount of Rs. 1,50,000 will be allowed as deduction.

Situation – III, Suppose, the actual amount of interest payable is Rs. 1,51,000, then it will be restricted to the maximum of Rs. 1,50,000 only.

Hence, the amount of deduction under this section will be less than or equal to Rs. 1,50,000 only, but it cannot be more than Rs. 1,50,000.

Conclusion: Navigating the deductions under Sections 24b, 80EE, and 80EEA offers taxpayers significant opportunities to optimize their tax liabilities. It’s essential to understand the eligibility criteria, conditions, and limitations of each section. Seeking professional advice can further enhance the effectiveness of utilizing these tax benefits, ensuring compliance with the Income Tax Act, 1961, and maximizing savings while adhering to legal requirements.