Budget – 2019 Special:  CA Naresh Jakhotia

 

Additional benefit of Rs. 1.50 Lakh towards housing loan is like an apple you can’t eat

 

There are various schemes and incentives which are announced not for use but for display.  Recent one is section 80EEA proposed to be incorporated by Budget – 2019.

Before I elaborate, let us first read the documents announcing introduction of section 80EEA reads as under:

In order to provide an impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at his disposal, it is proposed to insert a new section 80EEA in the Act so as to provide a deduction in respect of

interest up to one lakh fifty thousand rupees on loan taken for residential house property from any financial institution subject to the following conditions:

 

(i)                loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.

(ii)             the stamp duty value of house property does not exceed forty-five lakh rupees;

(iii)           assessee does not own any residential house property on the date of sanction of loan.

 

It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

 

This amendment will take effect from 1st April, 2020 and will accordingly apply in relation to assessment year 2020-21 and subsequent assessment years.

 

One of the criteria for section 80EEA tax benefit is that the value of the property cost should not exceed Rs. 45 Lakh.  Now, let us assume that the assessee purchases a property with value of exactly Rs. 45 Lakh then the loan amount obviously will be less than Rs. 45 Lakh, let us say the loan availed is Rs. 40 Lakh. Now, the general prevailing housing loan interest rate is 8%, which means that interest amount in the first year will be Rs. Maximum Rs. 3.20 Lakh and it will reduce year after year. Assessee, in such scenario will claim Rs. 2 Lakh u/s 24(a) & Rs. 1.20 Lakh u/s 80EEA. It means that the amount of Rs. 1.50 Lakh cannot be utilized unless and until the loan is taken at higher interest rate.

Now, bank generally sanctions the loan of Rs. 40 Lakh if the taxpayers have an income of Rs. 10 Lakh. The taxpayer in such cases makes her wife also as co-owner and co-applicant. If it so happens, the first year interest will be Rs. 1.60 Lakh each for husband and wife and in such cases there will not be any benefit u/s 80EEA.

Rather, in most of the cases, section 80EEA will be like an apple which one can have but can’t eat.

For ease of reference, section 80EEA reads as under?

 

 

(1) In computing the total income of an assessee, being an individual not eligible to

claim deduction under section 80EE, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.

(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—

(i) the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020;

(ii) the stamp duty value of residential house property does not exceed forty-five lakh rupees;

(iii) the assessee does not own any residential house property on the date of sanction of loan.

(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

(5) For the purposes of this section,––

(a) the expression “financial institution” shall have the meaning assigned to it in clause (a) of sub-section (5) of section 80EE;

(b) the expression “stamp duty value” means value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.