Home Loan and Budget 2019-20

New Delhi, July 10, 2019: The budget for the FY 2019-20 has introduced a new section 80EEA in the Income Tax Act which provides for tax deductions against interest payments made over a housing loan, in addition to the ones mentioned under section 24. However, the section imposes certain restrictions on availing these benefits. Only first time home buyers buying property valued at less than Rs. 45 lakh can claim these benefits. Targeted towards the vision of “Housing for All”, these provisions seem to be bogus pertaining to the number of restrictions that they impose.

In lieu of its dual vision of “Housing for all” and “affordable housing”, the central government has proposed to introduce a new section into the income tax act of 1961, Section 80EEA, which provides an additional tax benefit of up to Rs. 1.5 lakh every year on interest payments towards home loan. Currently, Section 24 of the act provides for a tax deduction of up to Rs. 2 lakh annually on home loan interest payments. Furthermore, the section 80C of the act provides for tax deductions of a maximum of Rs. 1.5 lakh every year against the repayment of the principal loan amount.

Tax Benefits on Interest Payment

The section 24 of the Income Tax Act of 1961 deals with tax benefits which are offered to individuals who have availed a loan for self-occupied residential property. Under this provision, a home loan borrower can claim a tax deduction of up to Rs. 2 lakh every year for the amount that he/she pays as home loan interest. A beneficiary can file these claims only after the complete construction of the house on the condition that the construction gets over within 5 years from the end of the financial year in which the loan was borrowed. If a beneficiary fails to complete the construction within the prescribed time period of five years, the benefits get reduced to Rs. 30,000 per year. Furthermore, if the house is owned by two or more individuals and each of the co-owner of the house is also a joint borrower of the loan, then every single one of them can claim the tax deductions independent of each other.

Additional Benefits as Proposed by Budget 2019-20

The Union Finance Minister, Nirmala Sitharaman, while presenting the budget for the financial year 2019-20 on the parliamentarian floor, introduced additional benefits of up to Rs. 1.5 lakh under the new section 80EEA. This takes the overall cap of tax deductions claimed against interest payment of home loan to Rs. 3.5 lakh from Rs. 2 lakh. However, there are certain conditions that need to be fulfilled in order to enjoy these additional benefits. These are:

1. Loan to be sanctioned in FY 19-20: The additional tax benefits provided under section 80EEA are confined to individuals who have borrowed a loan in the current financial year, that is, between the time period ranging from April 1, 2019 to March 31, 2020. This means that those who have borrowed before April 1 are not eligible to enjoy these benefits.
2. Value of property should not exceed Rs. 45 lakh: The section 80EEA further restricts the additional benefits only for properties whose registered price is less than Rs. 45 lakh. For loans taken against properties valued above Rs. 45 lakh, these benefits are not available.
3. The borrower must be a first time home buyer: Keeping in mind the aim of housing for all, the union government has restricted the tax benefits under the new section to only those individuals who are buying a house for the very first time. For people who have owned a house in the past, these benefits are not applicable.
4. No dual benefits: This section states that an individual claiming a tax deduction under its provision cannot claim tax deductions under any other section for the same amount. It means that if you have already enjoyed deductions under section 24, you cannot claim a deduction under section 80EEA for the same interest payment. If your interest payments exceed Rs. 2 lakh, only then you can enjoy these additional deductions.
5. Floor space specifications: For claiming tax deductions under the latest section, the floor space of the housing property should be less than 60 square meter in metropolitan cities and less than 90 square meter in non-metropolitan cities.

Critical Analysis of the New Provision

The government claims that the latest section of the Income Tax Act will aid in making housing affordable for all individuals as the new provision will compensate for the interest payment by relieving the stress of taxation. However, the clauses which state that the additional benefits can only be availed for houses valued under Rs. 45 lakh make it bogus and vague, since the interest amount under any condition for these houses will not be equivalent to Rs. 3.5 lakh.

Takeaway

The newly introduced section 80EEA has attracted a lot of limelight, since it extends the tax benefits against interest payments on housing loan to a whopping Rs. 3.5 lakh. However, the section has a lot of eligibility conditions such as house value cap, area restrictions and a well-defined timeline for which the benefits can be claimed. Though seems promising to make housing affordable for all individuals, these provisions may turn out to be bogus given to the various eligibility conditions imposed over it.

Corporate Comm India(CCI Newswire)