A new section 80EEA has been introduced in the Budget 2019 (July) which would give additional tax exemption on loans taken for purchase of affordable house. We give you the details of the same in the post.
80EEA – Eligibility & other Details
You would be eligible for the benefit u/s 80EEA if you satisfy following conditions:
- The home loan is taken from approved financial institutions between April 1, 2019 to
March 31, 2020[March 31, 2021 – extended in Budget 2020] - The stamp value of house is less than Rs 45 Lakhs
- The buyer should not have any other house in his name at the time of loan sanction
Total deduction on interest on housing loan would be Rs 3.5 lakh (2 lakh u/s 24 & 1.5 lakh u/s 80EEA)
Affordable Housing
Government defines affordable housing as:
- Houses with area less than 60 sq. mt. in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)
- Houses with area less than 90 sq. mt. in all cities other than metropolitan cities
- The stamp value of house should be less than Rs 45 Lakhs
How much Additional Tax you save?
We take a case which can tell you how much additional tax you would save with the new section.
- Property Purchase Value = Rs 45 Lakhs
- Loan (80% to 85% of Property value) = Rs 36 to 38 Lakhs
- For our calculation we would take higher value of Rs 38 lakhs
- Interest Rate = 9%
- Loan Tenure = 15 years
- EMI = Rs 38,542
The table below shows the additional tax you would save with the new Section EEA.
| Year | Annual EMI | Principal Paid | Interest Paid | Tax Exemption u/s 24 | Tax Exemption u/s 80EEA | Tax Saved @ 20.80% | Tax Saved @ 31.20% |
| 1 | 462,504 | 125,603 | 336,901 | 200,000 | 136,901 | 28,475 | 42,713 |
| 2 | 462,504 | 137,385 | 325,119 | 200,000 | 125,119 | 26,025 | 39,037 |
| 3 | 462,504 | 150,273 | 312,231 | 200,000 | 112,231 | 23,344 | 35,016 |
| 4 | 462,504 | 164,370 | 298,134 | 200,000 | 98,134 | 20,412 | 30,618 |
| 5 | 462,504 | 179,789 | 282,715 | 200,000 | 82,715 | 17,205 | 25,807 |
| 6 | 462,504 | 196,654 | 265,850 | 200,000 | 65,850 | 13,697 | 20,545 |
| 7 | 462,504 | 215,101 | 247,403 | 200,000 | 47,403 | 9,860 | 14,790 |
| 8 | 462,504 | 235,279 | 227,225 | 200,000 | 27,225 | 5,663 | 8,494 |
| 9 | 462,504 | 257,350 | 205,154 | 200,000 | 5,154 | 1,072 | 1,608 |
| 10 | 462,504 | 281,491 | 181,013 | 181,013 | |||
| 11 | 462,504 | 307,897 | 154,607 | 154,607 | |||
| 12 | 462,504 | 336,780 | 125,724 | 125,724 | |||
| 13 | 462,504 | 368,373 | 94,131 | 94,131 | |||
| 14 | 462,504 | 402,928 | 59,576 | 59,576 | |||
| 15 | 462,504 | 440,726 | 21,778 | 21,778 | |||
| Total | 6,937,560 | 3,800,000 | 3,137,560 | 2,436,828 | 700,732 | 145,752 | 218,628 |
In 9 years, the tax exemption would be close to Rs 7 Lakh (this was mentioned by finance minister in her Budget speech)
For 20% tax bucket the tax saved would be Rs 1.46 lakhs while for 30% tax bucket the tax saved is Rs 2.19 lakhs over 7 years.
The new Section 80EEA is good move and help people to buy affordable homes. However, the limit of Rs 45 lakh needs further enhancement as you may not find anything in metropolitan areas.