80EEA – New Tax Exemption on Loan for Purchase of Affordable House

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:

  1. The home loan is taken from approved financial institutions between April 1, 2019 to March 31, 2020
  2. The stamp value of house is less than Rs 45 Lakhs
  3. 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)

Also Read: Can I claim Tax Benefit on both HRA & Home Loan?

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
Additional Tax Exemption on Loan for Purchase of Affordable Homes

Section 80EEA – Additional Tax Exemption on Loan for Purchase of Affordable Homes

Download: Income Tax Calculator for FY 2019-20 [AY 2020-21]

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.

YearAnnual EMIPrincipal Paid Interest PaidTax Exemption u/s 24Tax Exemption u/s 80EEATax Saved @ 20.80%Tax Saved @ 31.20%
1462,504125,603336,901200,000136,90128,47542,713
2462,504137,385325,119200,000125,11926,02539,037
3462,504150,273312,231200,000112,23123,34435,016
4462,504164,370298,134200,00098,13420,41230,618
5462,504179,789282,715200,00082,71517,20525,807
6462,504196,654265,850200,00065,85013,69720,545
7462,504215,101247,403200,00047,4039,86014,790
8462,504235,279227,225200,00027,2255,6638,494
9462,504257,350205,154200,0005,1541,0721,608
10462,504281,491181,013181,013   
11462,504307,897154,607154,607   
12462,504336,780125,724125,724   
13462,504368,37394,13194,131   
14462,504402,92859,57659,576   
15462,504440,72621,77821,778   
Total6,937,5603,800,0003,137,5602,436,828700,732145,752218,628

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.

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