Section 80GG - Tax Claim Deduction for Rent Paid

Are you a tenant looking for ways to save on taxes? If you don’t receive House Rent Allowance (HRA) as part of your salary, Section 80GG might be your new best friend. This lesser-known provision in the Income Tax Act allows you to claim deductions on the rent you pay, offering some much-needed financial relief. Knowing how and how you can benefit from it can make you the most of this tax-saving opportunity.

What is Section 80GG?

Section 80GG is a provision within the Income Tax Act that permits a taxpayer or assessee to seek a deduction for the rent expended on their dwelling. This deduction applies to salaried and self-employed individuals, including those without income. This provision is an absolute savior for those who wish to decrease their overall tax obligations effectively.

Who Qualifies for the Section 80GG Tax Deduction?

Individuals eligible for a Section 80GG tax deduction are those who pay rent for their residence but do not receive any House Rent Allowance (HRA) from their employer. However, certain conditions need to be met:

• The assessee should not possess any residential property at their employment or business.
• The individual, their spouse, or minor child should not own any residential property elsewhere.
• The individual must refrain from claiming HRA deductions under other sections of Section 80GG of Income Tax Act.

What is the Deductible Amount under Section 80GG?

The deduction amount under Section 80GG is determined based on the following criteria:

• The maximum deduction under 80GG deduction limit allowable is ₹2,000 per month or 25% of the total income, whichever is lower.
• The rent paid must exceed 10% of the total income.
• The term “total income” encompasses earnings from all sources, including salary, business, and other avenues.

How are Deductions Under Section 80GG Calculated?

Calculating deductions under Section 80GG involves comparing three different amounts, with the lowest of these amounts being the one you can claim as a deduction.

1. Rent Paid Minus 10% of Adjusted Total Income: This method focuses on the actual rent you pay and your adjusted total income. Adjusted total income is calculated by taking your gross total income and reducing it by deductions claimed under Sections 80C to 80U (excluding Section 80GG). Additionally, any long-term capital gains are excluded from this calculation. The formula ensures the deduction is directly linked to your financial situation, making it proportionate to your overall income.
2. ₹5,000 Per Month: Regardless of the rent you actually pay, the maximum deduction allowed under this component is capped at ₹5,000 per month, translating to ₹60,000 annually. This provides a standardized benefit, especially for individuals with lower rental expenses. Even if your rent exceeds this amount, the deduction under this component will not go beyond ₹60,000 per year. This cap is designed to offer relief while maintaining a reasonable limit on the deduction amount.
3. 25% of Total Adjusted Income: The third method calculates the deduction as 25% of your total adjusted income, which is your gross total income before deducting any claims under Section 80GG. This ensures that the deduction remains a reasonable proportion of your overall income, keeping the benefit aligned with your financial standing.

Exceptions under Section 80GG

When it comes to claiming tax deductions for rent paid, Section 80GG of the Income Tax Act provides some relief for individuals who don’t receive House Rent Allowance (HRA) from their employer. However, like most tax provisions, Section 80GG comes with its own set of exceptions and conditions that one needs to be aware of.

Exception 1: Ownership of Property

One of the most significant exceptions under Section 80GG is related to property ownership. If you, your spouse, or your minor child owns a residential property in the city or town where you are currently residing and working, you cannot claim a deduction under this section. The logic behind this exception is straightforward: the tax benefit is intended for those who genuinely need to rent a place to live, not for those who already own a home in the same city.

Exception 2: No Claiming of HRA

Another key exception under Section 80GG is that this deduction is only available to individuals who do not receive HRA as part of their salary. If you receive HRA from your employer, you must claim your rent deduction under that specific provision, and not under Section 80GG. This ensures that there is no double benefit for the same rental expense.

Exception 3: Form 10BA Submission

To claim a deduction under Section 80GG, you must submit Form 10BA, which is a declaration confirming that you are not claiming any benefits from HRA, and that neither you nor your spouse owns a property in the city where you reside. If this form is not submitted, the deduction will not be allowed, making it a crucial step in the process.

Exception 4: Income Thresholds

While not an exception in the traditional sense, the deduction under Section 80GG is subject to certain income-related limits. The amount of deduction you can claim is the least of the following three: ₹5,000 per month, 25% of your total adjusted income, or the actual rent paid minus 10% of your adjusted income. These limits ensure that the deduction is fair and proportionate to your income, but they also mean that high-income earners or those paying minimal rent may see limited benefits under this section.

Exception 5: Non-Residential Property Ownership

If you or your spouse owns a property in another city or town that is not where you are currently residing for work, you may still be eligible for the deduction under Section 80GG. However, this comes with a condition: the property should not be claimed as self-occupied. If you have declared the property as self-occupied, it means you are not eligible to claim rent deduction under Section 80GG for your rented accommodation.

What are the Advantages of Section 80GG?

Section 80GG of Income Tax Act 1961 extends a helping hand to individuals who shoulder the weight of rental expenses, offering them a way to reduce their tax liabilities.

Tax Deduction for Rent Paid

Under Section 80GG, individuals who do not receive HRA from their employers can claim tax deductions for the rent paid. This deduction is permissible only if the taxpayer or their spouse or minor child does not own any residential accommodation at the location where they currently reside or perform employment duties. Such individuals can claim the least of the following amounts as a deduction:

• Rent paid minus 10% of the total income
• 25% of the total income
• ₹5,000 per month
• This provision significantly reduces taxpayers’ taxable income, easing their financial burden.

Flexibility in Location

Who does not prefer an option that allows higher flexibility? Well, this section is one such provision that offers flexibility concerning the location of the rented accommodation. Unlike HRA exemptions, which are contingent upon the place of employment, Section 80GG allows taxpayers to claim 80GG deduction for rent paid irrespective of their workplace location. This flexibility empowers individuals to choose their place of residence based on personal preferences or other factors without compromising their tax benefits.

Inclusion of Self-employed Individuals

Unlike HRA exemptions, which primarily benefit salaried individuals, Section 80GG also extends its benefits to self-employed individuals. Whether one is a salaried employee, a freelancer, or a business owner, as long as they fulfill the eligibility criteria, they can avail themselves of the tax benefits provided under Section 80GG. This inclusivity ensures that a broader spectrum of taxpayers can benefit from the 80GG deduction, promoting equity and fairness in the tax system.

Supplementary to Other Tax Deductions

Section 80GG operates independently of other tax-saving investments or deductions. Therefore, individuals can avail themselves of this deduction in addition to other deductions available under sections such as 80C, 80D, or 80G. This versatility allows taxpayers to optimize their tax planning strategies by leveraging multiple avenues to reduce their tax liabilities effectively.

Encouragement of Rental Housing

The section incentivizes individuals to opt for rental housing by providing tax relief on rental expenses, thereby stimulating the rental real estate market. This encouragement addresses the housing needs of individuals who cannot afford a property and contributes to the overall growth and development of the rental housing sector.

How to Apply for Deduction under Section 80GG?

To avail of an 80GG deduction, individuals must complete Form 10BA and submit it with their income tax return.

The following details are essential when filling out the form:

• Rental amount
• Full address of both the landlord and the assessee
• Duration of the rental period
• Rent receipts or evidence of rent payments
• Basic information about the assessee and landlord, including names and contact details
• It is advisable to have additional documents like rental agreements and government-issued ID cards on hand in case they are required during the claim process. Additionally, confirming that the employer does not reimburse the rent expenses is crucial.

Wrapping Up

Section 80GG serves as a critical component of India’s tax framework, offering a lifeline to individuals renting a home without the help of HRA. The tax relief provided by this section not only eases the financial burden on renters but also encourages the growth of the rental housing sector.

As individuals go through tax regulations, Section 80GG acts as the government’s commitment to providing inclusive solutions that fulfill the needs of its citizens. For people living on rent, it provides financial benefits and optimizes their tax 80GG deduction.

Key Takeaways

• Section 80GG provides taxpayers with a deduction for rent paid on accommodation.
• It caters to various income sources available to both salaried and self-employed individuals.
• Individuals not receiving House Rent Allowance (HRA) can still benefit from this deduction.
• The deduction is capped at the lower of ₹2,000 per month or 25% of the total income.

FAQs on Section 80GG