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

Additional Tax Exemption on Loan for Purchase of Affordable Homes

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)

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

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.

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.

Amit

Hi Readers! I am Amit, the mind behind Apnaplan.com I am MBA from NITIE, Mumbai and BIT from Delhi University. This blog is my online diary where I write about my tryst with my investment decisions. In the 400+ posts on this blog you will find articles on Personal Financial Planning, Investments, Retirement Planning, Insurance, Loans, Fixed Deposits, Provident Funds, Stock Markets, Gold, Silver, Real Estate Investment, Credit Cards, Credit Score, Taxation, Inheritance Planning and Reviews on various Financial Products.