Finance Act, 2013 with a view to provide additional benefit towards interest paid by assessee against housing loan inserted a new section of deduction i.e Section 80EE w.e.f. 01.04.2014. i.e.
Deduction in respect of interest on loan taken for residential house property.
80EE. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.
(2) The deduction under sub-section (1) shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on the 1st day of April, 2015.
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2013 and ending on the 31st day of March, 2014;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
(iii) the value of the residential house property does not exceed forty lakh rupees;
(iv) the assessee does not own any residential house property on the date of sanction of the loan.
(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.
(5) For the purposes of this section,—
(a) “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies including any bank or banking institution referred to in section 51 of that Act or a housing finance company;
(b) “housing finance company” means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.
Again, Act is already providing a benefit against interest paid on such housing loan taken by assessee vide section 24(b)
Deductions from income from house property.
24(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed 77[within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]
78[Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.]
If we go through with both the section one of the interpretation may arises like same component of interest is allowed as income deducting factor under both section but Section 80EE exclusively specified that interest allowed under this section shall not be allowed as deduction in any other section of this Act. This means any part of interest (to the extent allowable under this section) if taken as deduction then we shall not take any benefit as deduction of such part of interest under any other section.
The question is arises which part of interest is to be claim as deduction at which section of the act. One most important factor of both sections is time period of allowance of interest as deduction. Section 80EE allowed deduction as and when loan is sanctioned by the bank or financial institution but Section 24(b) allowed deduction only after completion of construction (within 3 years). That means Section 80EE is for immediate benefit but section 24(b) accumulate the interest upto the period of construction and allowed interest as deduction on five instalments to extent of Rs. 150,000/- after the completion of construction period. Here we should take the benefit of timing difference available under both section.
Let us have an illustration:-
Loan taken by assessee as on 01.04.2013
Interest paid per year Rs. 75000/-
Construction of completed on 31.03.2016
In such case assessee may take the benefit of Section 80ee for A.Y. 2014-15 for Rs. 75000/- and for A.Y. 2015-16 for Rs. 25000/- (Total limit of deduction Rs. 100000/-). Remaining part of interest may be claim as deduction u/s 24(b) i.e Rs. 125000/- (Interest of F.Y. 2014-15, Rs. 50000/- and Interest of F.Y. 2015-16, Rs. 75000) in A.Y 2016-17 i.e. on completion of construction.
In this way assessee may take the additional benefit of Section 80ee along with the benefit of section 24(b) in case of house property constructed for self occupation.
CA Prachand Dhoj Karki