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You are planning to invest in Residential House, and got excited with the news of tax exemptions, be careful and keep a check on the Investment value.  If you want to take the benefit of the Tax incentives in accordance to Budget 2013 and reap the benefits to the maxim, please check on the provisions carefully.

Our Honorable Finance minister wants you to invest in house and secure a residential property, but he is clear that the investment is in affordable housing and for first home buyers. So, dear friend keep a check on the investment value and that loan is for your first property in the year. And if you want to save on service tax chargeable on the value, then keep a track that the carpet area of the property is up to 2000 sq.ft. or not more than Rs.1 crore of value. A discussion from Direct tax and indirect tax perspective is laid down below, in accordance to the provisions proposed in the Financial Budget 2013-14.

Income tax benefit

A new section 80EE, has been proposed in the Direct Tax, which provides an additional exemption of Up to Rs. 1 lakh against the interest payable.

The proposed new section 80EE seeks to provide that in computing the total income of anassessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section,

  • interest payable on loantaken by himfrom any financial institution for the purpose of acquisition of a residential house property.
  • It is further provided that the deduction under the proposed section shall not exceed one lakh rupees
  • and shall be allowedin computing the total income of the individual for the assessment year beginning on 1st April, 2014
  • and in a case where the interestpayable 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 1st April, 2015.

It is also provided that the deduction shall be subject to the following conditions:-

(i)                 the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st 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)              theassesse  does not own any residential house property on the date of sanction of the loan.

It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year.

It is also proposed to define the term “financial institution”.

This amendment will take effect from 1st April, 2014 and accordingly apply in relation to the assessment year 2014-15 and subsequent assessment year.

 If you want to avail the benefit u/s 80EE, keep a check that the value of the residential property in which the investment is made is below Rs.40 lakh. When, the loan is sanctioned, you do not own any other residential house property and the loan value is restricted to Rs. 25 lakh only.

Not only this if your investment is for a house (residential unit) which is having carpet area more than 2000sq.ft, and you are procuring it during the course of construction, you may end up paying more of service tax too.

Service Tax Benefit

For making a rationalization of abatement, under Service tax the Finance minister has proposed that the service tax applicable for residential units having carpet area more than 2000 sq.ft or value exceeds Rs. One Crore, the taxable portion is increased to 30% from 1st March 2013, which till date was 25%. So,earlier the service tax which was payable @3.09% of the value, from 1st March 2013 will be @ 3.708% of the value. The provision proposed is as below:


At present taxable portion for service tax purpose is prescribed as 25% uniformly for constructions where value of land is included in the amount charged from the service recipient. This is being rationalized.

Accordingly, where the carpet area of residential unit is upto 2000 square feet. or the amount charged is less than One Crore Rupees, in the case of ‘construction of complex, building or civil structure, or a part thereof, intended for sale to a buyer, wholly or partly except where the entire consideration is received after issuance of completion certificate by the competent authority’, taxable portion for service tax purpose will remain as 25%; in all other cases taxable portion for service tax purpose will be 30%.

This change will come into effect from the 1st day of March, 2013.”

Hence, if one want to avail the tax benefit under 80EE and pay less of service tax, then the residential unit chosen should be of less than Rs. 40 lakh and restricted to carpet area of 2000sq.ft.

Disclaimer: These are my personal interpretation and the reader may draw inferences/make judgments on their case with respect to the applicable statute and circumstances.

C.A Ekta Gupta

Email id: ektakath@rediffmail.com

Mobile : 8826411515


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  1. krithika says:

    Hi Ekta, Thanks for the update

    I wanted to kmow if there is a joint loan (husband and wife) but loan is below 25lakhs.. do both of us get the additional; benefit of 1 lakh?

  2. Rajkumar Goel says:

    Madam thanks for update. Please tell me About Joint Holding( husband and wife ) and Flat value is less than 80 lacs. and loan below 50 Lac whether they going the benefit u/s 80EE. pls reply Goel-9850962650

  3. Thangaraj says:

    Well written Mr.Ekta Gupta.

    Can you clarify me,whether the additional benefit of income tax can claimed in subsuquent assessment years, i.e., after AY 14-15 also ?

    Suppose I avail a loan during this FY, I will be eligible for additional Rs.1 lac interest benefit for AY 14-15. Can I claim same additional benefit after AY 14-15 also ?

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July 2024