Tax relief: First-time homebuyers are missing a Rs 50,000 tax break — even banks don’t flag it, says expert

Many first-time homebuyers are missing out on a crucial tax deduction, which could significantly reduce their tax liabilities. The lesser-known Section 80EE of the Income Tax Act offers an additional deduction of up to Rs 50,000 on home loan interest payments. Despite its potential benefits, this provision is often overlooked due to a lack of awareness among buyers and their financial advisors. This oversight can lead to missed opportunities for substantial tax savings, affecting the financial planning of many households.

Section 80EE is specifically designed for first-time homebuyers who meet certain conditions. To qualify, the home loan must have been sanctioned in the financial year 2016-17 or later, with the property value capped at Rs 50 lakh and the loan amount at Rs 35 lakh or less. Additionally, the buyer should not have owned any other residential property when the loan was approved. These criteria ensure that the deduction is targeted towards those who are new to the housing market. However, the lack of automatic application means that many eligible taxpayers remain uninformed about this advantage.

The significance of this deduction is illustrated by the experience of one homebuyer, whose situation was recounted by CA Nitin Kaushik. The client, who met all the criteria, realised he had not been claiming this deduction simply because he had not been informed by either his bank or previous tax consultant. "We amended his ITR, claimed the Rs 50,000 under 80EE, and he got back Rs 15,600 in tax savings instantly, being in the 30% slab," said Kaushik. Such experiences underscore the necessity for better communication and awareness among homebuyers to optimise their financial benefits.

Missing out on such deductions can have a palpable financial impact, particularly as equated monthly instalments (EMIs) rise and inflation continues to affect household budgets. Unlike some automatic deductions, Section 80EE must be manually claimed when filing income tax returns, which adds to the oversight risk. The onus is on the taxpayers to be informed and proactive about claiming these benefits to ensure that they do not lose out on valuable savings.

For those whose home loans do not qualify under Section 80EE, Section 80EEA provides an alternative, albeit with slightly different criteria. This provision applies to loans sanctioned from FY 2019-20 onwards and allows for deductions on properties valued up to Rs 45 lakh. Despite these options, many first-time buyers remain unaware of the benefits available to them. This lack of awareness can result in considerable financial losses over time, highlighting the need for comprehensive guidance in tax planning.

The broader benefits of utilising home loan tax deductions extend beyond Section 80EE. Under Section 80C, taxpayers can claim deductions up to Rs 1.5 lakh annually for principal repayments, and additional deductions under Section 24(b). By leveraging these in combination with Sections 80EE and 80EEA, homeowners can strategically reduce their taxable income. This strategic approach not only enhances immediate savings but also contributes to long-term financial health, making it an essential aspect of any comprehensive financial strategy.

Tax advisors stress the importance of consulting with professionals to ensure all eligible deductions are claimed. "Don’t let tax savings go unclaimed just because no one told you," Kaushik advised, highlighting the need for proactive financial planning. Ensuring eligibility under these sections can result in significant savings, putting more money back into the pockets of taxpayers. Additionally, understanding these provisions can empower homebuyers to make informed decisions, potentially easing the financial strain of homeownership.