From April 1, new home-buyers will not be able to enjoy additional tax deduction of up to Rs 1.5 lakh on interest paid on home loans. The benefit, available under section 80 EEA, was announced in Budget 2019 to encourage purchase of affordable housing units.
Limited period benefits under Section 80EEA
In Budget 2019, Finance Minister Nirmala Sitharaman announced that first-time home-buyers could claim an additional deduction on interest paid of up to Rs 1.5 lakh for a loan taken to purchase an affordable housing unit. Initially, the deduction was allowed only for loans sanctioned by financial institutions between April 1, 2019 and March 31, 2020.
“However, the period of loan sanction was extended from March 31, 2020 to March 31, 2021 and finally to March 31, 2022 in the subsequent Finance Bills. No further extension has been granted,” said Anita Basrur, partner, Direct Tax, Sudit K Parekh & Co LLP
This tax benefit is over and above the deduction of Rs 2 lakh on home loan interest paid, available under Section 24(b) of the Income Tax Act, 1961. The other criterion to claim the benefit under this section is that the stamp duty value of the house property should not be more than Rs 45 lakh.
Also read: Affordable housing: low ceiling on value limits income tax benefits for home-buyers
What is affordable housing?
According to the income tax department, an affordable housing unit is one where the carpet area does not exceed 60 square metres (645 sq ft) in metropolitan cities such as Delhi, Mumbai, Bengaluru, Chennai, Hyderabad and Kolkata. The qualifying upper limit in non-metros is 90 square metres (968 sq ft).
Limited beneficiaries
Though the additional deduction limit looks attractive, very few borrowers were able to maximise the benefits, primarily due to the benign interest rate scenario in the last couple of years, loan-to-value ratio and other stringent eligibility parameters.
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