(Last Updated On: July 10, 2019)

Section 80EEA Income Tax : Deduction in respect of interest on loan taken for certain house property

Commentary on Section 80EEA Income Tax Act

Key Points of Section 80EEA Income Tax Act

Effective Date : Section 80EEA Income Tax effect from the 1st day of April, 2020, i.e AY 2020-21 and Onwards
When Deduction is allowed :Section 80EEA Income Tax provide for deduction in respect of interest on loan taken for acquisition of residential house property from any financial institution
Amount of Deduction :Section 80EEA Income Tax provide for Deduction of interest on loan taken for acquisition of residential house property up to one lakh and fifty-thousand rupees.However When the aforesaid deduction is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.
Meaning of Acquire/Acquisition : The word ‘acquire’, according to the ‘Black’s Law Dictionary’ has the following meaning:’Acquire. To gain by any means, usually by one’s own exertions; to get as one’s own; to obtain by search, endeavour, investment, practice, or purchase; receive or gain in whatever manner; come to have.’ Hence, it could be argued that the term ‘acquired’ includes an acquisition from a developer where the construction is done by the developer for a specific fixed sum or even a self-constructed house.
Ownership : The deduction of Section 80EEA Income Tax is not dependent upon ‘ownership’ of the residential property.
Meaning of Residential House : The expression residential house has not been defined in the Act. Thus it is not necessary that a person should reside in the house to call it a residential house. If it is capable of being used for the purpose of residence; then the requirement of section is satisfied.
From where and when Loan should be Taken : The loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;
- “financial institution” means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies, or any bank or banking institution referred to in section 51 of that Act or a housing finance company;
- “housing finance company” means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.
Maximum Value of Property to be Acquired : The stamp duty value of residential house property does not exceed forty-five lakh rupees;
Self Occupation not required: The deduction would be available whether the residential property is vacant, self occupied or let out.
Should not have the Property : The assessee does not own any residential house property on the date of sanction of loan
New Property not necessary : It is not necessary that the residential property should be a new residential house. It could be an existing house and hence, the deduction under section 80EEA would be available in respect of an existing house which is purchased by the assessee from another person.
Additional Deduction : It may be noted that the deduction u/s 80EEA is in addition to the deduction of interest under section 24(b) of Income Tax Act
Completion of Construction /Acquisition not required : Deduction u/s 80EEA could be available even if the deduction under section 24(b) is not available (e.g. the interest for the period prior to the year in which property is acquired / constructed would not be available under section 24 but would be available under section 80EEA).
Mr Ram Taken House Loan on 01.04.2019
Rs Rate Interest
House Loan 4000000 9.50% 380000
Deduction u/s 24(b) 200000
(Maximum)
Deduction u/s 80EEA 150000
(Maximum)
Total 350000
Amount of Loan : No restrictions on Amount of Loan that can be taken.

Clause 25 of Finance Bill 2019

25. After section 80EE of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2020, namely:––

‘80EEA. (1) In computing the total income of an assessee, being an individual not eligible to claim deduction under section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—

(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

(ii) the stamp duty value of residential house property does not exceed forty-five lakh rupees;

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

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

(a) the expression “financial institution” shall have the meaning assigned to it in clause (a) of sub-section (5) of section 80EE;

(b) the expression “stamp duty value” means value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

Explanation of Clause 25 of Finance Bill 2019

Clause 25 of of the Bill seeks to insert a new sections 80EEA and 80EEB in the Income-tax Act relating to deduction in respect of interest on loan taken for certain house property and deduction in respect of purchase of electric vehicle.

The proposed new section 80EEA seeks to provide for deduction in respect of interest on loan taken for residential house property from any financial institution up to one lakh and fifty-thousand rupees subject to the conditions specified therein.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 20202021 and subsequent assessment years.

Memorandum of Clause 25 of Finance Bill 2019

Tax incentive for affordable housing

In order to provide an impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at his disposal, it is proposed to insert a new section 80EEA in the Act so as to provide a deduction in respect of interest up to one lakh fifty thousand rupees on loan taken for residential house property from any financial institution subject to the following conditions:

(i) loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.
(ii) the stamp duty value of house property does not exceed forty-five lakh rupees;
(iii) assessee does not own any residential house property on the date of sanction of loan.

It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year

This amendment will take effect from 1st April, 2020 and will accordingly apply in relation to assessment year 2020-21 and subsequent assessment years

Section 80EEA Income Tax : Deduction for interest on loan taken for residential house property.