Tax planning to reduce income tax – Additional deduction of interest on housing loan u/s 80EE and 80EEA

Introduction

As a taxpayer we are always in search of tax planning hints to reduce income tax payments. We need to remember that tax saved with a proper planning certainly helps to enrich us. In this article I want to introduce tax planning hints for taxpayers having housing loans and what are additional benefits available to taxpayers for claiming interest on housing loan under section 80EE and 80EEA

Deduction of Interest on housing loan from House Property Income

Section 24(b) of Income tax Act provides assesee is eligible to claim deduction for home loan interest upto Rs. 2 Lacs. Interest paid on home loan before possession of property can be claimed in 5 equal installments from the year of possession. The overall yearly limit for normal home loan interest + pre possession emi interest can not exceed Rs. 2 Lacs.

Let us understand it by way of example:

A has taken loan for purchase of house property on 01.04.2017. The possession of property received on 31.12.2020. Total pre possession interest paid in this period is Rs. 6 Lacs. After possession of property interest paid on housing loan is Rs. 80,000/-

One fifth of pre possession interest Rs. 1,20,000/- i.e. ( Rs. 6,00,000 divided by 5 years )will be allowed as deduction from AY 21-22 to AY 26-27. Rs. 80,000/- paid as interest on housing loan for the period after possession of property till 31st March 21 will available for deduction. Hence total housing loan interest that can be claimed in AY 21-22 is Rs. 1,20,000/-( pre possession interest) + Rs. 80,000/- ( home loan interest paid for the period 01.01.2021 till 31.03.2021) is Rs. 2 lacs which is maximum amount available for deduction u/s 24(b).

Deduction in respect of interest on loan taken for residential house property ( Section 80EE )

As per 80EE deduction of interest is available under section 80EE in Chapter VIA. Maximum deduction of interest on loan is available Rs. 50,000/-.

For claiming deduction under this section, following conditions needs to be satisfied:-

1. Loan must have been taken from financial institution

2. The loan must have been sanctioned between the period April 2016 to March 2017

3. Amount of loan sanctioned for acquisition of residential house property

4. Maximum loan amount is Rs. 35 Lakhs

5. Value of residential house property does not exceed Rs. 50 Lakhs

6. Assessee does not own any residential house property on the date of sanction of loan

Let us understand it by way of example:

A has taken loan for purchase of house property on 01.05.2016. The sanction date of loan is 01.05.2016. The possession of property received on 01.04.2017. Total amount of interest paid during financial year 2016 – 2017 is Rs. 2,46,000/-.

In above case, A can claim Rs. 2 Lakhs interest paid on loan for acquisition of house property under Section 24(b) and as all conditions under section 80EE are satisfied additional deduction of Rs. 46,000/- can be claimed u/s 80EE under Chapter VIA.

Deduction in respect of interest on loan taken for certain house property ( Section 80EEA)

Interest on loan taken for acquisition of residential house property can be claimed as deduction under section 80EEA under Chapter VIA. Maximum amount of deduction can be claimed is Rs. 150 Lakhs.

For claiming deduction under this section, following conditions needs to be satisfied:-

1. Loan must have been taken from financial institution

2. The loan must have been sanctioned between the period April 2019 to March 2022

3. Amount of loan sanctioned for acquisition of residential house property

4. Maximum loan amount is Rs. 45 Lakhs

5. Stamp duty value of residential house property does not exceed Rs. 50 Lakhs

6. Assessee does not own any residential house property on the date of sanction of loan

Let us understand it by way of example:

A has taken loan for purchase of house property on 01.05.2019. The sanction date of loan is 01.05.2019. The possession of property received on 01.04.2021. Total amount of interest paid during financial year 2021 – 2022 is Rs. 3,50,000/-.

In above case, A can claim Rs. 2 Lakhs interest paid on loan for acquisition of house property under Section 24(b) and as all conditions under section 80EEA are satisfied additional deduction of Rs. 1,50,000/- can be claimed u/s 80EEA under Chapter VIA.

I hope this will help all readers in tax planning of income from house property and will benefit additional tax savings.

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