Claim Deduction on Rent Paid under Sec 80GG

Introduction

Under Sec 80GG of Income Tax Axt 1961,  individuals can claim deduction on rent paid if they do not receive House Rent Allowance (HRA) even if they pay rent for accommodation. The individuals can be self-employed or salaried employees who cannot benefit from rent exemption. Section 80GG is designed for such types of taxpayers.

Section 80GG: Deduction on Rent Paid

This section 80GG provides house rent deduction on fulfilling certain conditions, which we will discuss in this article.

Eligibility

For Whom?

• It is for the Individuals who do not get HRA in their salary, including self-employed and professionals who do not earn wages. An individual or a HUF can claim it.
• It is not for those individuals who get HRA in their salaries. It is an essential component of wages. Employers give it to their employees to accommodate expenses on rent paid. HRA in salaries is claimed under another section of income tax 10(13A). It can be partially or fully claimed based on your actual expense on rent. If you get HRA in your salary and are not living in a rented space, the HRA component of your salary is fully taxable.

Conditions

To claim rent paid deduction under section 80GG, the following conditions exist:

• You, your spouse, minor child or HUF should not own a residential house in any place where you are employed, operate your business or profession or in any other city where you are claiming the benefit of a self-occupied house.
• It means the use of claiming a tax deduction for claiming repayment of interest and principal of the home loan and claiming 80GG together is not possible.
• If you own a house in another city, it is treated as rented out.
• While claiming tax 80GG deduction under this section, you must fill and submit form 10 BA, which states you satisfy the first 2 conditions.

What is the amount that can be claimed?

Deduction under Section 80GG shall be the least of the following-

1.Rs. 5,000 per month, i.e. Rs. 60,000 per year

2. Rent Paid minus 10% of Adjusted Total Income

3. 25% of Adjusted Total Income

What is Adjusted Total Income?

Adjusted Total Income is calculated by deducting the following incomes/deductions from Gross Total Income :

1. Short Term Capital Gain from Equity Shares and MF

2. Long Term Capital Gain (Equity as well as debt)

3.  Exempt Income Like Dividend on shares, Interest on PPF etc.

4. Deductions from section 80C to 80U

Example

Section 80GG: Deduction on 80GG Rent Paid

If your adjusted total income is Rs.4 Lakhs and annual rent paid is Rs.2.4 Lakhs, then the least of the following will be allowed for deduction:

1. Rs. 5,000 per month, i.e. Rs. 60,000 per year

2. Rent Paid minus 10% of Adjusted Total Income = (2.4 Lakhs – 10%(4 Lakhs)) = Rs.2 Lakhs

3.  25% of Adjusted Total Income = 25%(4 Lakhs) = Rs.1 Lakhs

Important Points

1. While claiming deduction under Sec 80GG, the employee shall furnish rent receipts or rent agreement.

2. Also, he needs to fill Form 10BA, which will prove that he is not claiming the benefit of his self-occupied property.

3. If Rent paid to the landlord exceeds Rs. 1,00,000, then he needs to furnish PAN to his landlord (Landlord needs to provide tenant details in his income tax return.)

4. Following are the details required to be submitted for claiming deduction under section 80GG :

• Name of the assessee
•  PAN
•  Full address of the premises along with Postal Code
• Tenure (in months)
• Payment Mode
• Amount Paid
• Name of landlord
• address of the landlord.
• PAN of the landlord is mandatory if rental is more than INR 1 lakh for the assessment year.
• A Declaration confirms that no other house property is owned by the taxpayer himself or in the name of Spouse / minor child or by the HUF of which he is a member.