Section 80GG in Income Tax Act: Tax Claim Deduction for Rent Paid

Last Updated: 17 Oct 2024

Any Indian citizen strives to save taxes considerably, and accordingly, the savings would all the more be wonderful if he is choosy about every deduction and exemption available under the Income Tax Act. One of such provisions aimed at alleviating the individuals without any House Rent Allowance. This provision has found a place under Section 80GG of the Income Tax Act. Subject to specified conditions, the provision allows an individual paying rent to claim the deduction. Regarding tax benefits, Section 80GG can truly help someone who is self-employed or a salaried employee not covered under HRA.

We shall discuss the following main issues about Section 80GG in this thorough section: computation of deduction, eligibility conditions, and the required documentation to claim it.

What is Section 80GG?

Taxpayers who do not have an HRA can still have their rent paid for by having it deducted under Section 80GG of the Income Tax Act, of 1961. For those who are renting and cannot qualify for the housing tax exemption, this is essentially a lifesaver. You can deduct up to Rs. 5,000 per month or 25% of your total income, whichever is lower, up to a maximum of Rs. 60,000 per year, under 80GG.

Eligibility Criteria for Section 80GG

Claiming a deduction under 80GG income tax requires specific conditions of eligibility. Let’s take the break: –

1. Salaried or Self-Employed Individual:

To be eligible for this deduction, you need to be either self-employed or paid a salary. If you are salaried but your company does not offer HRA as part of your pay, you may be entitled to benefits under the sec 80GG of the Income Tax Act.

2. No homes owned in the city where work is located:

The person or his spouse, minor kid, or Hindu Undivided Family (HUF) shall not possess any residential property in the city where they reside. If such is the case, the deduction per Section 80GG cannot be claimed. They have been granted permission to possess a residence in a different city.

3. Rent Paid:

The deduction would be available only if the rent is paid towards accommodation, whether furnished or unfurnished.

4. Declaration in Form 10BA:

To avail of the rent deduction, you must submit Form 10BA indicating that you are not receiving Harmonized Rate Adjustment (HRA) and do not own any property in the city where you are claiming the deduction.

5. No Double Benefit of HRA:

Individuals who have been granted a Human Resources Allowance (HRA) by their employer at any point throughout the financial year are ineligible to assert any deduction under section 80GG of the Income Tax Act for that respective period.

6. Income Limits:

Hence, the deduction in this category lacks a defined income threshold. The sum is equivalent to either Rs. 5,000 per month or 25% of your overall income, or the lesser of the actual rent paid and 10% of the earned income.

How Deductions Under Section 80GG Are Calculated

The tax deduction eligible for claim under Section 80GG will be determined by the minimum value among the following possibilities.

• Average monthly amount of Rs. 5,000. That is a yearly aggregate of Rs. 60,000.
• On average, 25% of your overall salary for the whole year.
• The net rent paid is determined by deducting 10% from your total income.

Now, we’ll consider three persons who have differences in both their income and the rent paid. The scenario will be used to elaborate on how the 80GG income tax deduction is applied.

Particulars	Individual X	Individual Y	Individual Z
Annual Income	Rs. 5,00,000	Rs. 8,00,000	Rs. 150,000
Rent Paid (per month)	Rs. 6,000	Rs. 15,000	Rs. 4,500
Total Rent Paid (per year)	Rs. 72,000	Rs. 1.80,000	Rs. 54,000
10% of Total Income	Rs. 50,000	Rs. 80,000	Rs. 15,000
Remaining Rent Paid	Rs. 22,000	Rs. 1.20,000	Rs. 39,000
25% of Annual Income	Rs. 1,25,000	Rs. 2,00,000	Rs. 37,500
Deduction Allowed	Rs. 22,000	Rs. 60,000	Rs. 37,500

• Individual X: The remaining rent paid (Rs. 22,000) is the least among the three criteria and thus is the deduction they can claim.
• Individual Y: The maximum deduction allowed (Rs. 60,000) applies as it’s lower than 25% of their income and the remaining rent paid.
• Individual Z: The deduction they can claim is Rs. 37,500, which is 25% of their annual income, as it’s the lowest amount.

How to Claim Deductions under Section 80GG

If you are seeking to claim Section 80GG, there are formalities required. Apart from others, you will have to turn in Form 10BA and be able to support the claim you are making. Here is the entire procedure:

1. Obtain Form 10BA either from the nearest tax office or by downloading it from the designated website of the Income Tax Department.

2. Fill out the required fields: your name, PAN number, place of residence, relevant financial year, paid rent, and landlord’s information.

3. Submit Form 10BA together with your income tax return. Kindly ensure that Form 10BA is signed and fully completed.

4. Present rental receipts as evidence of all payments made to the landlord. In addition to the payment amount, the receipt should include the landlord’s name and address, together with the deadline for payment.

5. Statement confirming that you, your spouse, or underage child does not own any residential property in the current city of employment.

Documents Required to Claim Section 80GG

Benefits under section 80GG of the income tax statute necessitate the submission of the following documents:

1. Rent Receipts:

Evidence of rent payment.

2. Form 10BA:

This form serves as a declaration to confirm that the individual does not get Housing Rental Allowance (HRA) and does not own any property in the city where they hold employment.

3. Landlord PAN:

If the annual rental income of your property surpasses Rs. 1 lakh, it is required to furnish the PAN (Property Owners’ Number) of your landlord.

4. Evidence of Income:

Compilation of salary slips or income tax returns for deduction computation.

Benefits of Section 80GG

1.For Non-HRA Salaried Employees:

If there are no HRA clauses covering the individual from the employer’s perspective, Section 80GG of the IT Act allows him to seek the deduction of rent paid.

2. Salary Paid Individuals Appropriate for self-employed:

The tax break under section 80GG is more likely to result in tax savings for self-employed people.

3. A Simple Deduction:

Although most of the other tax provisions are long and fairly and practically detailed with a number of calculations, Section 80GG is quite simple, hence rather easy to benefit from.

Limitations of Section 80GG

• The maximum deduction limit of Rs. 5,000 per month may not be enough for those paying higher rents, especially in metropolitan cities.
• This deduction is only available to individuals who do not receive HRA. If you receive HRA for even a part of the year, you may lose the ability to claim Section 80GG for that year.

Conclusion

House owners who live in rented properties but are not paid house rent allowance by their jobs will find Section 80GG quite useful. When one is salaried than self-employed, there is much to learn about how to claim deductions using sec 80GG of the Income Tax Act, thereby greatly reducing tax payments. To optimize this little-known but significant clause, substantial work must be done in terms of eligibility, paperwork, and, finally, proper deductions.

Frequently Asked Questions

1. Who is eligible for claiming deductions under Section 80GG?

Any salaried or self-employed individual who does not receive HRA and does not own a property in the city they work in can claim deductions under Section 80GG.

2. What is the maximum deduction I can claim under Section 80GG?

The maximum deduction is Rs. 5,000 per month or Rs. 60,000 per year, or 25% of your total income, whichever is lower.

3. Can I claim Section 80GG if I receive HRA for a part of the year?

No, you cannot claim 80GG income tax deductions if you receive HRA for any part of the year.

4. What is Form 10BA, and why is it needed?

Form 10BA is a declaration you must submit to claim deductions under Section 80GG, confirming that you do not own property in the city and are not receiving HRA.

5. Do I need my landlord’s PAN to claim deductions under Section 80GG?

Yes, if the rent paid exceeds Rs. 1 lakh per year, you must provide your landlord’s PAN details.