It was the day of Saraswati Puja. Moonmoon and Raj were invited by Moonmoon’s mother to join the puja.
Since she was a little girl, the day of Saraswati Puja was always special. Cutting fruits in pieces, arranging flowers, offering anjali on an empty stomach, and helping her mother in cooking bhog immersed her into happiness. She planned to go to her father’s home quite early so that she could lend a helping hand to her aging mother.
When she and Raj reached her father’s home, she became nostalgic. The large dishes with fruits and sweets, and the smell of incense took her back to her school days.
While she joined her mother, Raj joined his father-in-law for some chit-chat over coffee.
After talking about the weather, food, and the economy, the discussion veered towards tax implications on property purchase.
Raj wanted to know how buying a property right now is a great opportunity for considerable savings under section 80EEA of the Income Tax Act.
Moonmoon’s father said, ”I will discuss that. And you see, the current financial year (2021-22) is the last chance for availing it, as the scheme is not extended.”
What is Section 80EEA Deduction?
Section 80EEA helps first-time homebuyers to save an additional Rs 1.50 lakh per year against home loan interest payments if they are buying an ‘affordable property’. The 80EEA deduction is over and above the deduction limit of Rs 2 lakh allowed under Section 24 (b). However, 80EEA deduction is linked to the cost of the house and is extended on the purchase of affordable housing units worth up to Rs 45 lakh. The affordability of the house is also decided by the carpet area of the property. For the homebuyer to claim the benefit under Section 80EEA in a metropolitan city, its carpet area should not exceed 645 sq ft or 60 sq metres, For units in any other city, the carpet area has been limited at 968 sq ft or 90 sq metres.
Cities that are considered metropolitan for this purpose are Bengaluru, Chennai, Delhi, Faridabad, Ghaziabad, Greater Noida, Gurugram, Hyderabad, Kolkata, Mumbai, and Noida.
Who is Eligible for Section 80EEA Deduction?
First-time individual homebuyers are eligible for Section 80EEA deduction. It means that Hindu Undivided Families or Companies cannot claim Section 80EEA benefits.
Now, who is a first-time homebuyer?
A first-time homebuyer is a person who does not own a property in his name at the time of applying for his home loan. For tax calculation purposes, a working adult, even if single, is considered a separate household and thus, a first-time home buyer even if his parents own properties.
What are the Other Conditions?
Section 80EEA benefits are restricted to homebuyers only if they avail of home loans from banks or financial institutions and not from friends or family members. Benefits can be claimed only against interest payment and not repayment of the principal.
Benefits under Section 80EEA can be claimed even if the property is not self-occupied. This also allows buyers who are living in rented accommodations to claim deductions while also claiming HRA benefits under Section 80GG. Even joint owners can claim tax breaks up to Rs 1.5 lakh each if they meet all the other conditions.
Borrowers whose home loans are sanctioned between 1st April 2019, and 31st March 2022, can claim benefits.
Even though the deduction under 80EEA may be available only on home loans sanctioned till March 2022, those who are eligible for the rebate can claim deductions throughout the term of their home loan repayment.
The borrower will have to submit the interest certificate issued by his bank, to claim the rebate.
Under the PMAY rules, a single earning member of a family is considered a separate household for tax calculation purposes. This also means that an unmarried buyer, who is financially independent, is a separate household and can thus claim tax deductions under Section 80EEA for his first property purchase.
However, deductions under Section 80EEA can only be claimed against the purchase of flats and not land. And if a homebuyer is claiming benefits under Section 80EE then deductions under Section 80EEA are not admissible.
Buyers can claim deductions under both, Section 24(b) and Section 80EEA, and enhance their total non-taxable income to Rs 3.50 lakh if they meet the eligibility criteria. However, deductions under Section 80EEA can only be claimed after exhausting the Rs 2-lakh limit under Section 24(b).
Why Should You Act Now?
Benefits under Section 80EEA are slated to end by 31st March 2022 as the scheme was not extended further. So, if you decide to take advantage of the benefit under Section 80EEA, you must apply for a home loan right now and get the sanction letter before 31st March 2022.
Having a home loan sanction letter within the given period of the benefit, one would be able to claim income tax benefit under Section 80EEA for the entire tenor of home loan even if you buy their home after some time but within the given validity period of the approved home loan.
This can be a smart way to lock the benefits under Section 80EEA even if plan to buy your flat in the next financial year.
Moonmoon’s father stopped talking.
At that moment, Moonmoon’s mother called them to offer anjali.