Section 80GG -Tax Claim Deduction for Rent Paid

In a country like India, where rent is a big concern, Section 80GG offers helpful tax benefits. This special rule is for people who don't get a house rent allowance (HRA) from their employer, and pay their rent entirely on their own. Whether you're self-employed or salaried, you can benefit from Section 80GG.  However, there are some conditions that you need to follow. In this article, we have covered essential details that will be helpful to you including the maximum deduction you can get and the requirements for eligibility.

So, if you're looking to save on taxes and want to understand how Section 80GG can help, take a look at this article. 

Overview of Section 80GG

Section 80GG is a special provision under the Income Tax Act, 1961, which provides tax benefits to individuals who don't receive House Rent Allowance (HRA) from their employer. This section allows taxpayers, both salaried and self-employed, to claim a deduction for the rent paid on their residential accommodation.

To qualify for this deduction, an individual must be living in a rented property, and their employer should not be providing House Rent Allowance (HRA) as part of their monthly compensation. 

Let's learn more about this section. 

Deduction Claim Limit Under Section 80GG 

The deduction claim limit under Section 80GG is determined based on the following three criteria, and out of these three, you can claim the one that is the least. 

• You can claim a deduction equal to or lower than Rs. 5000 per month or Rs. 60,000 annually

• Your deduction can be 25% of your adjusted total income

• The deduction can also be calculated by deducting 10% of your adjusted total income from the total rent paid during the financial year.

NOTE: Here, Adjusted Total Income is your gross total income after making below-mentioned reductions:

• Long-Term Capital Gains (LTCG) if any, included in the total gross income

• Short-Term Capital Gains (STCG) under section 111A

• All deductions under sections 80C to 80U, except the deduction under Section 80GG

Eligibility for Getting Deduction Under Section 80GG

To qualify for deductions related to house rent under Section 80GG, you need to meet the following conditions:

• Individual or HUF Status: You should be either an individual or part of a Hindu Undivided Family (HUF). Companies are not eligible for house rent deductions.

• Employment Status: You can be either self-employed or salaried.

• No HRA Benefits: You should not be receiving House Rent Allowance (HRA) as part of your salary.

• Form Submission: Fill out and submit Form 10BA to declare that you are not claiming the benefits of self-occupied property in any other location or in the same location where you work.

• Rent Amount: If your annual rent exceeds Rs. 1 lakh, furnishing the PAN Card of the house owner is a must. 

• Furnished or Unfurnished: You can claim rent deductions for both semi-furnished and fully-furnished houses.

• No Previous HRA Claims: HRA should not have been claimed at any point during the fiscal year. Also, if you switched jobs and received HRA from your previous employer, you are not eligible to claim a deduction under Section 80GG for that fiscal year. 

• No Residential Property Ownership: You, your spouse, minor child, or the HUF to which you belong should not own any residential property where you currently live, work, or conduct business. 

Exceptions to Section 80GG

Following are the exceptions to Section 80GG of the Income Tax Act:

• You can't claim a deduction for house rent if the house is where you work or do business.

• You can't claim a deduction for house rent if you're already benefiting from owning a self-occupied property in a different location.

• If you're staying with your parents and want to claim a rent deduction under Section 80GG, you must create a rental agreement with them. However, your parents, who own the house, need to declare the rent as income in their tax returns.

Getting and Completing Form 10BA for Section 80GG Benefits

Here are the steps on procuring and completing Form 10BA:

Getting the Form

You can obtain Form 10BA from various sources listed below:

• Check with your company's HR department

• Visit tax offices to get a copy

• The easiest way is to find and download the form online.

Filling the Form

Now, if you want to claim tax benefits under Section 80GG, you need to fill out Form 10BA. Here's what you need to include in the form:

• Fill your complete address, including the postal code

• Provide your name and PAN (Permanent Account Number)

• Specify how you make the rent payments

• Mention the number of months you have lived at the rented property

• Specify the amount of rent you pay

• Include the name and address of the property owner

• Confirm that you, your spouse, and/or minor child/children do not own any other residential property

• If your annual rent is over Rs. 1 lakh, provide the PAN number of the property owner.

How are Deductions Claimed Under Section 80GG?

Here's a simple guide on claiming deductions under Section 80GG of the Income Tax Act:

• Check If You are Eligible: Make sure you meet all eligibility criteria for claiming a deduction under Section 80GG.

• Get Rent Receipts: Ask your landlord for rent receipts, showing the rent you paid throughout the financial year.

• Fill Out Declaration Form: Complete and submit Form 10BA, a self-declaration confirming that you meet the eligibility criteria for Section 80GG.

• Calculate Deduction: Figure out the deduction amount by choosing the least from these options: Rs. 5,000 per month, 25% of your total income for the year, or actual rent paid minus 10% of your total income for the year.

• Claim Deduction in Tax Return: Note down the deduction under Section 80GG while filling in your income tax return.

• Submit Tax Return: Last but not least, file your income tax return before the specified due date set by the Income Tax Department.

Example of Claiming Deduction Under Section 80GG

Kanika, whose adjusted total income is Rs. 5 lakh per year resides in Gurgaon, paying a monthly rent of Rs. 15,000, totaling Rs. 180,000 annually. Now, applying the criteria mentioned earlier, we have the following possibilities to consider:

• Rs. 5000 per month or Rs. 60,000 annually, which is a part of the deduction limit
• 25% of Rs. 5,00,000 = Rs. 1,25,000
• Rs. 1,80,000 - (10% of Rs. 5,00,000) = Rs. 1,30,000

Among these three amounts, the lowest is Rs. 60,000. Therefore, Kanika is eligible to claim and receive a deduction of Rs. 60,000 per year from her total gross income for the rent she pays.

Documents Required to Claim Deduction Under Section 80GG

To claim a deduction under Section 80GG of the Income Tax Act, you may need the following documents:

• Rent Receipts: Obtain rent receipts from your landlord, showing the rent paid during the financial year.

• Rent Agreement: Keep a copy of the rent agreement as proof of your tenancy.

• Declaration Form: Fill and submit a declaration in Form 10BA, confirming that you meet the eligibility criteria for claiming the deduction.

• Proof of Payment: Maintain proof of rent payment, such as bank statements or canceled cheques, to support your claim.

• PAN of Landlord: As mentioned earlier, if your annual rent exceeds Rs. 1,00,000, provide the Permanent Account Number (PAN) of your landlord.

Conclusion

Section 80GG of the Income Tax Act provides valuable tax relief to individuals who do not receive House Rent Allowance (HRA) and yet incur rental expenses for accommodation. By allowing individuals to avail tax benefits on their rented accommodations, Section 80GG aims to ease the financial burden associated with housing expenses.

Frequently Asked Questions (FAQs)

Q 1. What is Section 80GG, and who qualifies for it?

Ans. Section 80GG allows individuals without HRA to claim rent deductions. It benefits both self-employed and salaried individuals.

Q 2. What are the conditions for Section 80GG deductions?

Ans. To qualify, individuals must rent their residence, not receive HRA, and meet criteria like not owning a property where they live or work.

Q 3. How is the deduction limit calculated under Section 80GG?

Ans. The limit is the least of three calculations: Rs. 5,000 per month, 25% of adjusted total income, or actual rent paid minus 10% of adjusted total income.

Q 4. Can I claim Section 80GG if I live with my parents?

Ans. Yes, but you need a rental agreement, and your parents, who own the house, must declare the rent as income.