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Affordable housing: How to claim Income Tax deduction up to Rs 3.5 lakh on home loans

FP Staff
In Union Budget 2019, affordable housing got a further fillip with an increase in Income Tax deduction of Rs 1.5 lakh on home loans

In the Union Budget 2019, affordable housing got a further fillip with an increase in Income Tax deduction of Rs 1.5 lakh on home loans.

Finance Minister Nirmala Sitharaman said the interest paid on housing loans is currently allowed as a deduction to the extent of Rs 2 lakh under Section 24.

"To provide further impetus to affordable housing, an additional deduction of Rs 1.5 lakh will be given on interest paid on loans borrowed up to 31 March 2020 for purchase of house up to Rs 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh. This will translate into a benefit of around Rs 7 lakh to the middle-class home-buyers over their loan period of 15 years," Sitharaman had said.

The government has proposed to insert a new section 80EEA in the Act so as to provide a deduction Rs 1.50 lakh additional income tax deductions on loan taken for residential house/property up to Rs 45 lakh from any financial institution.

To align the definition of affordable housing under the Income Tax Act with GST Acts, Sitharaman had proposed to increase the limit of carpet area from 30 square metre to 60 square metre in metropolitan regions and from 60 square metre to 90 square metre in non-metropolitan areas. The cost of the affordable house has been fixed at Rs 45 lakh and below.

Conditions for availing tax deduction

(i) The loan has to be sanctioned by a financial institution during the period beginning on 1 April 2019 to 31 March 2020

(ii) Stamp duty value of house property does not exceed Rs 45 lakh

(iii) The assessee does not own any residential house property on the date of sanction of loan

(iv) The loan must be taken from a financial institution or a housing finance company

(v) The taxpayer should not be eligible to claim deduction under the existing Section 80EE

How to claim deductions under Section 24 and Section 80EEA

Under Section 24, homeowners can claim a deduction for interest payments up to Rs 2 lakh on their home loan, if the owner or his family resides in the house property, said Archit Gupta, Founder and CEO, ClearTax. The deduction of up to Rs 2 lakh applies even when the house is vacant. If you have rented out the property, the entire home loan interest is allowed as a deduction.

If you are able to satisfy the conditions of both Section 24 and Section 80EEA of the Income Tax Act, you can claim the benefits under both the sections.

First, exhaust your deductible limit under Section 24, which is Rs 2 lakh. Then, go on to claim the additional benefits under Section 80EEA. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under Section 24.

Also See: Real Estate Sector Budget 2019: Govt hikes tax break on interest paid on home loans to Rs 3.5 lakh for purchase of first house

Real Estate Sector Budget 2019: Additional tax deduction of Rs 1.50 lakh on interest on home loans taken up to Mar 2020 proposed

Budget 2019 serves all sectors of economy, builds upon India's growth story of last 5 yrs, writes ex-FM Arun Jaitley in blog

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