Section 80GG: Claim Income Tax Deduction on Rent Paid

Section 80GG

Section 80GG is introduced by the government to provide tax relief to those individuals who do not receive HRA but pay rent for their stay on a regular basis. Both self-employed and salaried individuals can claim deduction under this section.

Who can claim a deduction for rent paid under Section 80GG?

The Indian government is aware of this very fact and has thus come up with Section 80GG, which is applicable to a self-employed person, businessman and salaried persons. It caters to the deduction for the house rent paid provided you have not claimed for any deduction under any other section of the income tax act, i.e. in case if you are claiming a deduction based on the house rent allowance, you will not claim any deduction under Section 80GG of the Income Tax Act 1961. Although Section 80GG offers a wide range of benefits, it is undoubtedly a bit ignored section of the Income Tax Act 1961.

Normally HRA, i.e. Housing Rent Allowance, is a part of salary based on which you can claim the amount of deduction under the income tax act. However, there is a section of employees that do not receive HRA or any similar component to HRA as a part of their salary. In case you fall under the section of the employees who are not entitled to getting HRA, Income Tax Act still got you covered by introducing a lesser-known provision that allows you to claim tax benefit provided you fulfil certain criteria. If you are staying in rented accommodation and making payments towards rent for any furnished or unfurnished accommodation which is occupied for your own residence, you are allowed to claim a deduction under Section 80GG towards your rental amount, based on below-mentioned conditions:

1. You are an individual (Self-employed or salaried)
2. HRA or any equivalent allowance is not a part of your salary.
3. Neither you nor your wife or children, including the minors, should have the ownership of the rented property where you reside.
4. If you are a part of Hindu Undivided Family (HUF), neither you nor your family should be in the possession or own the place where you reside.
5. In case you own a property other than the one where you reside, you should not be claiming any tax benefit on such property as self-occupied property and that property should be deemed to be let-out property. In case you own a property in some other city other than the city of your residence and have not given it for rent, you are not eligible to claim any deductions under Section 80GG, even if you are staying in a rented accommodation.
6. You must be filing a declaration in Form No 10BA confirming that you have paid the rent amount in full and fulfil all the required conditions to claim deductions under Section 80GG of the Income Tax Act 1961. You can fill the form 10BA online by logging to the Income Tax E Filing website and details like rent paid or the rent amount and the name of the landlord is must. Form 10BA is available under the tab “e-file” as “Prepare and Submit Online Form (other than ITR).

What information is necessary to claim a section 80GG deduction?

To claim the deduction under section 80GG, you must submit the required information -

• Name
• The address of the residential apartment in which you have been living. You must also include the complete address, including the postal code.
• PAN Details
• The term of your tenancy in the rental property
• Rent amount and mode of payment (cash, bank deposit, etc.)
• The owner's name and address (i.e. landlord).

(This information is not required when filing Form-10BA online through the IT site.)

A declaration that you do not own any residential accommodation in your name or the name of your spouse, or even in the name of your minor child or HUF to which you belong.

House Rent Allowance under Section 80GG

House Rent Allowance or HRA is a basic component of the salary provided by the employer to his employees, which is fully taxable if you are not living in rented accommodation, i.e. in case you are paying rent for any furnished or unfurnished accommodation occupied by you for your own residence, a portion of HRA may be exempted from tax otherwise tax will be applicable. The intention behind having HRA as a part of your salary is usually to meet the cost of rented accommodation you may be living in.

Calculation of your HRA is based on four factors:

• Salary
• Rent Paid
• HRA component of your salary
• Place/location of rented accommodation

In order to claim a deduction from HRA, you need to fulfil below-mentioned conditions:

1. You must live in a rented accommodation
2. You must be able to furnish documents in support of the rent payment you do each month.
3. Payment of the rent should not be made towards your spouse. However, you can be entered into a rent agreement with your parents or children and claim tax deductions on the same provided you add tax receipts as part of their taxable income.

In order to claim deductions under Section 80GG of the Income Tax Act 1961, you need to furnish below-mentioned documents:

1. You need to furnish the rent agreement and rent receipts duly signed by your landlords.
2. In case you are paying more than 1 lac annually as rent, then you would need to furnish the PAN Card details of your landlord.
3. In order to claim the allowed deductions under Section 80GG, you must also need to file Form 10BA in order to prove that you are not claiming any benefit of self-occupied property at any other location.

The deduction available from HRA is the minimum of the following amounts:

1. Rent paid less 10% of the basic salary, where basic salary includes dearness allowance.
2. 50% of your basic salary if you are living in a rented accommodation either in Mumbai, Delhi, Kolkata or Chennai; and 40% of your basic salary if you are living in a rented accommodation in any other city.
3. Applicable and received HRA - in case you have stayed in rented accommodation for a few months or for part of the year, HRA will be considered for that part only and not for the complete year.

HRA Exemption under Section 80GG

Take an example: If Mr Akshay lives in Kolkata and draw Rs 50,000 as his basic salary and Rs. 20,000 per month as his HRA. He is staying in a rented accommodation for which he is paying Rs 18,000 as a monthly rental.

HRA exempt amount will be the minimum of the following calculated amount:

• Rent paid – 10% of the basic salary = Rs 18,000 – Rs 5,000 = Rs 13,000.
• 50% of his basic salary since he is living in Kolkata = 50%*50,000 = Rs 25,000
• Received HRA = Rs 20,000

Thus HRA exemption will be Rs 13,000 and RS 7,000 (Rs 20,000 – Rs 13,000) will be a part of his taxable income on account of HRA.

Deduction under Section 80GG

As per Section 80GG of the Income Tax Act, the deduction allowed under it should be least of the following mentioned:

1. Rs 5,000 per month i.e. Rs 60,000 annually It was Rs 2,000 per month before F.Y. 2016-17.
2. Rent paid minus 10 percent the adjusted total income, wherein adjusted total income means the Gross total income as reduced by long term capital gain if any and if included in the gross total income, short term capital gains, all deductions permissible under Section 80C to 80U except deduction under Section 80GG any income as per Section 115A, 115AB, 115AC or 115AD.
3. 25% of the total income of the taxpayer for the year, wherein total income means total income of the taxpayer for the year before he has claimed any deductions on it under Section 80GG.

For example: Mr. Anil pays a monthly rent of Rs 10,000/- and his total income before any deduction is Rs 4, 80,000. As per the Section 80GG of the Income Tax Act, deductions allowed to Mr Anil will be as per the below-mentioned calculation:

1. Amount calculated at Rs 5,000 per month = Rs 60,000.
2. 25% of the total income without any deductions = 25% * Rs 4,80,000 = Rs 1,20,000.
3. Rent Paid Less 10% of the total income = [[Rs 10,000 * 12) – (10% * Rs 4,80,000)] = Rs 72,000
4. Lowest of above is Rs 60,000 which will allowed as deduction under Section 80GG of the Income tax Act.

Tax Exemptions under Section 80GG

Income Tax Act allows certain exemptions under Section 80GG such as:

• You cannot claim deductions under Section 80GG in case you own a house in a location where you are working or running a business.
• You cannot claim any deduction under Section 80GG in case you own a house in a city other than where you are staying and former has not been rented out.
• In case your monthly rental amount is lesser than Rs 5000 per month, it implies that you are living in a small city and having a proportionately low income and thus are exempted from the payment of income tax altogether. Also, HRA being a basic component of almost every employee, you are automatically excluded from claiming any benefits under Section 80GG.

Filing Form 10BA: How to Do It Correctly?

As previously noted, Form 10BA is required for anyone seeking Section 80GG tax benefits. The following are some of the details that must be completed in Form 10BA prior to submission -

• Complete address with postal code
• Full name and PAN number of the assessee
• Payment method
• Tenure of residency in months
• Rental fee
• Property owner's name and address
• Declaration by the assessee, his/her spouse or minor child that they do not own any other residential property
• If the rent exceeds Rs.1 lakh in any financial year, the landlord's PAN number is required.

Where can this 10BA Form be Accessed?

These forms are widely available from various sources, including any reputable organization's human resource department. Additionally, one can obtain the same from tax agencies. However, the simplest way to locate one is to search online. Individuals can access and download it from a variety of government-sponsored websites.