Did you know you can enjoy an income tax benefit on the interest rate of your residential property?
Interest paid on a home loan from a bank or other lending organisation is eligible for tax deductions under Section 80EE. A maximum annual deduction of Rs 50,000 is allowed under this 80EE deduction provision. This deduction can be used until the debt is paid in full.
Let’s look at what Section 80EE is and if you can claim a deduction for the same in this article.
What Is Section 80EE?
Section 80EE from the Income Tax Act 1961 permits tax deductions for mortgage interest paid by first-time homebuyers. This section was created in 2013 to encourage the purchase of affordable housing and provide first-time homebuyers with additional tax benefits.
In complement to the deductions permitted by Sections 24 and 80C of the Act, it permits individuals to deduct mortgage interest. The maximum amount that may be deducted under this clause in a single fiscal year is 50,000.
What Are The Conditions You Must Meet For 80EE Deduction?
- Minimum value of the home must be Rs 50 lakh or less.
- Loan for the home must not exceed Rs 35 lakh or less.
- Financial institutions or housing finance companies must authorise the loan.
- As of the date of loan approval, you cannot own any other residential property.
Who Is Eligible For A Deduction Under Section 80EE?
To qualify for section 80EE tax deductions, a taxpayer must meet the following requirements:
- They must be first-time buyers of a property.
- They must be a unique entity.
What are The Characteristics Of The 80E Deduction?
Eligibility requirements: This section’s deduction is only available to individuals. It means that if you are a HUF, an AOP, a corporation, or any other type of taxpayer, you are not eligible for this benefit.
Deduction limit: Deductions are limited to a maximum of Rs 50,000.
Duration: Section 80EE deductions are available for a maximum of five years from the loan’s approval date. It means that a person can claim tax deductions for a maximum of five fiscal years, beginning with the year the loan was approved.
Other Requirements: To be eligible for this deduction, you cannot own any other residence when a financial institution approves your loan.
What Are The Benefits Of Section 80EE Deduction?
The following are some key benefits of Section 80EE of the Income Tax Act:
1. Aids in maximising your tax deduction
Under this section, you may claim tax deductions of up to 50,000 per fiscal year for the interest portion of your mortgage. It is in addition to the utmost deduction limit of 2 Lakh allowed under Section 24(b) for proprietors of self-occupied properties, which is 2 Lakh.
2. Raising Affordability
This section makes housing loans more affordable by allowing you to continue claiming it each fiscal year for the duration of the loan.
3. No restriction on Owner-occupancy
Contrary to Section 24 (b), which requires the taxpayer to occupy the property for which they are claiming a tax deduction on his mortgage payments, Section 80EE contains no such requirement. Whether you reside in the property for which you have obtained a mortgage is irrelevant.
What Is The Application For Section 80EE?
- The procedure for claiming Section 80EE tax deductions is as follows:
- Ensure that you fulfil the above eligibility requirements.
- Keep all documents related to your home loan and property on hand, including the loan sanction letter, property documents, and receipts for interest payments.
- Submit your tax return for the year you intend to claim deductions.
- Include the Section 80EE deductions when calculating your taxable income on your tax return.
- Submit the tax return form and supporting documentation to the appropriate authorities.
After processing your tax return, the Section 80EE deductions will be applied to your taxable income. You are eligible for tax benefits in accordance with the provisions of this section. Following the correct application procedure is vital to ensure that your deductions are claimed accurately.
What Is The Sanction Letter; Why Is It Important?
The Sanction letter is a document issued by the bank that confirms your eligibility for the requested loan amount. It is evidence that you have secured the loan and contains all pertinent information regarding the loan transaction.
The bank will offer the letter based on your eligibility, creditworthiness as a borrower, and other financial factors. In addition, the letter will include the requested terms or reasonable modifications based on your eligibility.
- It is crucial because it contains information about the loan’s repayment terms. It allows you to evaluate and determine whether to proceed with the loan. Additionally, it allows you to negotiate with the lender, compare offers, and transfer to a better lender.
- The bank loan approval letter estimates the monthly payment amount. It offers an idea of whether you can afford the loan and allows you to budget accordingly.
- It serves as evidence that you and the lender discussed the loan terms. This is useful for settling any future disputes that may arise.