Mar 1, 2013

New Section 80EE about additional deduction on housing loan interest

Finance Bill, 2013 proposes to insert a new section 80EE in order to promote affordable housing to first time home buyers by allowing deduction in respect of interest on loan taken for purchase of first residential house. The said section 80EE is proposed to be inserted with effect from 1.4.2014 which is as under:

'80EE. (1) In computing the total income of an assessee, being an individual, 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 rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on the 1st day of April, 2015.

(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, 2013 and ending on the 31st day of March, 2014;

(ii)  the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;

(iii)  the value of the residential house property does not exceed forty lakh rupees;

(iv)  the assessee does not own any residential house property on the date of sanction of the 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 provisions of the Act for the same or any other assessment year.

(5) For the purposes of this section,—
(a)  "financial institution" means a banking company to which the Banking Regulation Act, 1949 applies including any bank or banking institution referred to in section 51 of that Act or a housing finance company;

(b)  "housing finance company" means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.

The proposed amendment provides for deduction to maximum of rupees one lakh on a loan taken for a residential house property; however said deduction can be availed of only on satisfaction of the conditions provided under sub-section (3).

A new section 80EE is proposed to be inserted by the Finance Bill, 2013. The said provision proposes to allow deduction for interest paid on loan taken by individual assessee from a financial institution in the financial year 2013-14 for acquiring residential house property to the extent of rupees one lakh. The said deduction is available subject to conditions being satisfied which are provided in sub-section (3) to the proposed section. The deduction of this section can be availed only for the assessment year 2014-15, if in case the interest paid in the financial year 2013-14 is less than one lakh, in such cases the assessee is entitled to claim deduction of the balance amount in assessment year 2015-16. However, the proposed section provides that if the assessee avails deduction under this section then such interest portion shall not be allowed under any other provisions of the Act.
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