The Home Loan rebate in income tax helps Home Loan borrowers save a substantial amount of money each year. Home Loans are paid in the form of EMIs. Every EMI constitutes an interest component and a principal component – borrowers can claim deductions on both the interest component as well as the principal component of the Home Loan. Section 80C of the Income Tax Act deals with Home Loan income tax rebates on the principal component of the Home Loan. Section 24(B) and Section 80EE of the Income Tax Act, on the other hand, deal with the interest component of the Home Loan. Before we answer whether borrowers can claim deductions under both 80EE and 80C simultaneously, let us look at the features of both sections.
Section 80C of the Income Tax Act
Section 80C of the Income Tax Act deals with various investments, such as investments made towards provident funds and equity-linked saving schemes, life insurance premiums, etc. Under this category also come investments made towards the principal repayment of the Home Loan. However, Home Loan borrowers must know that the total limit for tax deductions under this section of the Income Tax Act is Rs.1.5 Lakh.
Section 80EE of the Income Tax Act
Before we talk about Section 80EE of the Income Tax Act, borrowers must know that Section 24(b) of the Income Tax Act allows one to claim deductions up to a maximum of Rs.2 Lakh on payments made towards interest repayment. Unlike Section 80C of the Income Tax Act, which deals with several different tax-saving instruments, Section 24(b) of the Income Tax Act only deals with Home Loan income tax deductions related to the interest component of the loan.
Coming now to Section 80EE of the Income Tax Act. Under this section of the ITC, a borrower can claim an additional Rs.50,000 as a Home Loan income tax rebate on the interest component of the loan, provided they meet certain prerequisites. To be able to claim this deduction, the borrower must be a first-time homebuyer and must not have any other property in their name at the time of sanctioning of the loan. Further, the total value of the property for which they are availing of a Home Loan must not exceed Rs.50 Lakh and the total value of the loan must not be more than Rs.35 Lakh. Moreover, you must have availed of the Home Loan between April 1, 2016, and March 31, 2017, to be eligible for a deduction under this category.
Also Read: Can You Claim Both HRA and Home Loan Tax Benefits?
The next question is whether it is possible to claim Home Loan tax deductions under both Section 80C and 80EE of the Income Tax Act. The answer is yes. Read on to know how.
How to Claim Tax Deduction Under Both Section 80C and Section 80EE of the Income Tax Act?
There is no correlation between Section 80C of the Income Tax Act and Section 80EE, except for the fact that both deal with Home Loan tax exemptions. Section 80C of the Income Tax Act deals with tax rebates on the principal component of the Home Loan repayment. On the other hand, section 80EE of the Income Tax Act deals with tax deduction on the interest component of the Home Loan availed of by a Home Loan borrower who is a first-time homebuyer and had availed of the loan for property purchase in FY 2013-14 or FY 2016-17.
Home Loan borrowers can claim a Home Loan rebate in income tax at the time of filing their taxes. Use the ITR form to claim these deductions. Keep in mind that to be able to claim deductions under both these sections as well as other sections of the Income Tax Act, you will have to provide proof of payment. So, keep all the required receipts and documents ready with you to experience a hassle-free journey.
Home Loans are an excellent way to build an asset and pay for it in a convenient manner. Home Loans also offer several Home Loan tax benefits which taxpayers can use to save sizeable funds by way of Home Loan income tax exemptions. However, to be able to claim these deductions, a borrower must have a full understanding of what each of the different sections deals with and the prerequisites for claiming deductions under various sections of the Income Tax Act.
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Frequently Asked Questions
If you meet the requirements of both Section 24 and Section 80EEA of the Income Tax Act, you can enjoy the advantages of both sections.
Start by utilising the maximum deduction allowed under Section 24, which is Rs.2 Lakh, for the interest paid on your Home Loan.
In simpler terms, claim the deduction of up to Rs.2 Lakh under Section 24 first and then avail of the extra benefits under Section 80EEA if you qualify for them.
Section 80EE enables you to receive income tax benefits on the interest component of your Home Loan from any financial institution. According to this section, you can claim a deduction of up to Rs.50,000 per financial year.
To claim deductions under Section 80EE, certain conditions must be met:
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Only individual taxpayers, whether purchasing a property individually or jointly with a spouse, are eligible for this deduction. Each individual can claim the deduction separately if both are paying the loan instalments.
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The taxpayer is not required to reside in the property for which the deduction is claimed. Even individuals living in rented accommodations can claim this deduction.
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The tax benefits do not apply to Hindu Undivided Families (HUF), Association of Persons (AOP), companies, trusts, etc.
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The deduction under Section 80EE is available exclusively for first-time homebuyers who have obtained a loan from a financial institution for purchasing their first residential property.
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