Section 80GG Of The Income Tax Act: Income Tax Claim Deduction For Rent Paid
Home rents can be burdensome, especially in urban areas. Since the demand for rented property is comparatively high, the amount charged for rent is also rising gradually. A person’s monthly earning gets impacted in case he/she has a house on rent but receives no House Rent Allowance (HRA). Section 80GG of the Income Tax Act, 1961 offers a deduction on the rent amount every year.
Want to know more about this Section? Read along!
What is Section 80GG of the Income Tax Act?
Chapter VI-A of the Income Tax Act mentions Section 80GG, which allows a deduction on the rent of an unfurnished or furnished house. The provision includes residential houses only. The deductions denote the cost that can be subtracted from the annual gross income to get the taxable income upon which the tax will be imposed.
Individuals often try to incorporate tax-saving options in their income tax returns to ease the financial burden.
Also Read: Income Tax Slabs And Rates
Who Can Claim Section 80GG Deductions?
An individual must satisfy the following conditions to claim deductions:
- HUFs (Hindu Undivided Family) and sole individuals are eligible to claim 80GG deductions. Businesses or companies cannot get similar tax benefits against rent in a fiscal year.
- Self-employed individuals or salaried professionals can also benefit from this provision. However, one who doesn’t have a source of income cannot get a tax advantage.
- People wishing to avail of the 80GG deduction can submit a duly filled in Form 10BA to the Government of India. This declaration form ensures that an individual cannot get a rent-oriented tax deduction in case of having a self-occupied property at any location.
- Section 80GG of the Income Tax Act covers those individuals who do not receive HRA from their employers. When a person’s salary includes HRA, he/she cannot claim deductions related to rent under this Section.
- If a taxpayer’s yearly rent expense exceeds Rs. 1 lakh, he/she needs to keep a copy of the property owner’s PAN card.
- Individuals staying with parents on their property are also eligible to claim tax advantages under this Section. In this case, the person needs to sign a rental contract with their parents. When the parents file their income tax return, the amount stated as rent will be taxed.
- Non-resident Indians also qualify for tax deductions associated with house rent. However, the rent must be of a property in the country.
- A person who has claimed HRA from the employer for any month of the fiscal year cannot file for a rent-based tax deduction.
Also Read: NRI Income Tax Slabs: Details On Taxable Income and Deductions
What Is the Significance of Form 10BA Under Section 80GG?
Form 10BA refers to a statement that has to be recorded by a taxpayer who must maintain tax deduction records for the rent settled on a rental property under Section 80GG. He/she can claim tax deduction while filing ITR on the rental property.
Filing Form 10BA Under Section 80GG
It is mandatory to file Form 10BA to get benefits from Section 80GG of the Income Tax Act. It is a declaration stating that the taxpayer has taken a rental house during the specific period and he/she has no other residence. The following details need to be furnished in the form:
- Assessee’s name and PAN
- Address (including postal code)
- Rental cost
- Mode of payment
- Tenure of residency (mentioned in months)
- Property owner’s name and address
- PAN of the rental house’s proprietor if the rental amount exceeds Rs. 1 lakh in the financial year
- Declaration affirming that the taxpayer, his/her minor child, or spouse do not own any residential property.
Why is the Deduction Limit Kept Low Under Section 80GG of Income Tax Act?
The maximum limit for claiming deduction is Rs. 60,000 under Section 80GG. This is kept low because the rent across cities has increased rapidly, including the tier-II and tier-III cities.
How Can Taxpayers Maximize Their 80GG Benefits?
To maximize 80GG benefits, taxpayers can claim a deduction on rent if they are living with their parents and have a rental agreement with them. If the parents are retired or senior citizens, the benefits will be even more.
What Are the Exceptions of Section 80GG?
Keep in mind the following exceptions of this provision:
- The individual should not be a residential property owner in a location where he/she lives or works.
- A person who has been previously claiming a tax deduction on a residential property held in a different location cannot avail of the deductions.
- If an individual stays in a city while owning a house or property in another city, he/she cannot claim rental deductions.
Claiming Tax Deduction Under Section 80GG If HRA is Part of Salary
HRA or House rent allowance comes under the salary structure but is not fully taxable. Under Section 10(13A) of the Income Tax Act, a part of HRA is eligible for tax deduction subject to certain conditions. The amount of HRA deduction is exempted while calculating the total taxable income. However, if the taxpayer resides in his own house, then the HRA received from the employer is fully taxable.
How Much Amount Is Eligible for 80GG Deductions?
The lowest of the following will be taken as the 80GG Deduction:
- Rs. 60,000 per year/Rs. 5000 per month
- Actual rent minus 10% of a person’s adjusted total income
- 25% of an individual’s adjusted total income
Adjusted total income signifies the income after excluding short-term capital gains or long-term capital gains under Section 111A or NRI earnings if any. It also subtracts deductions under Sections 80C to 80U except for this section.
Maximum Limit of Deduction Under Section 80GG
The maximum limit of deduction under Section 80GG is Rs. 60,000 in a financial year. However, you must not have received any HRA in that particular financial year to be eligible for this deduction.
How to Calculate Tax Deduction Under Section 80GG?
The following illustration compares the rent-based 80GG deduction of two individuals:
| Factors | Person 1 | Person 2 |
| Adjusted Total Income (ATI) | Rs. 3,00,000 | Rs. 2,80,000 |
| Annual Rent | Rs. 1,00,000 | Rs. 80,000 |
| Deductions under section 80GG | ||
| Annual Rent – 10% of ATI | Rs. 70,000 | Rs. 52,000 |
| Rs. 5,000 each month | Rs. 60,000 | Rs. 60,000 |
| 25% of ATI | Rs. 75,000 | Rs. 70,000 |
| Deductions applicable | Rs. 60,000 | Rs. 52,000 |
The above table clearly indicates that Person 1 gets a tax deduction of Rs. 60,000, whereas Person 2 gets a deduction of Rs. 52,000 under this provision.
Also Read: How To Use Online Income Tax Calculator?
Final Word
Section 80GG of the Income Tax Act is a straightforward and efficient way to get a tax deduction for paying rent. However, these deductions may not be enough to reduce your financial burden.
In those cases, you can opt for other tax-saving options such as investment in ELSS (Equity Linked Savings Schemes) mutual funds, which facilitates a deduction of up to Rs. 1.5 lakhs under section 80C.
Mutual fund schemes, such as Navi Long Term Advantage Fund Direct-Growth, are ELSS funds that offer a maximum tax deduction of Rs. 46,800 under Section 80C.
FAQs on Section 80GG
Ans: Form 10BA is easily available from different sources, such as the HR department of any reputed organization and tax offices. An individual can also spot the form online. People can download this form from various official portals.
Ans: Yes, an individual can pay rent to his/her spouse and file for HRA tax benefits. However, the rent paid will be calculated as the spouse’s income and must be disclosed in the ITR of the spouse.
Ans: Yes, Section 10 (13A) allows income tax deduction against rent paid for individuals who receive HRA as part of their salary package. Unlike Section 80GG, it has no higher limit for deductions that can be claimed by the assessee.
Ans: The new regime keeps the following income brackets and percentages of tax:
0 to Rs. 2.5 lakh – Nil
Above Rs. 2.5 lakh to Rs. 5 lakh – 5%
Above Rs. 5 lakh to Rs. 7.5 lakh – 10%
Above Rs. 7.5 lakh to Rs. 10 lakh – 15%
Above Rs. 10 lakh to Rs. 12.5 lakh – 20%
Above Rs. 12.5 lakh to Rs. 15 lakh – 25%
Above Rs. 15 lakh – 30%
Ans: Taxpayers must file income tax returns every financial year through ITR forms specified by the Income Tax Department. There are seven ITR forms (ITR-1 to ITR-7) to choose from and file the tax return. For instance, the form varies for trusts, companies, partnership firms and individuals.
Ans: No, it is not possible to claim an 80GG deduction if HRA is a part of the salary structure.
Ans: Adjusted total income is the income after subtracting the deductions one gets under certain sections.
Ans: It is only possible for a property owner to claim an 80GG deduction if the property is let-out or deemed to be a let-out property.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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