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. Individuals often try to incorporate tax-saving options in their income tax returns to ease the financial burden.
A person’s monthly earning gets impacted in case he/she has a house on rent but receives no House Rent Allowance (HRA). The Income Tax Act, 1961 offers a deduction on the rent amount every year. Want to know more about this Section? Read along!
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.
Also Read – Income Tax Slabs And Rates
An individual must satisfy the following conditions to claim deductions:
Also Read – How To Use Online Income Tax Calculator?
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:
Keep in mind the following exceptions of this provision:
The lowest of the following will be taken as the deduction under Section 80GG of the Income Tax Act:
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.
The following illustration compares the rent-based tax 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 u/s 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.
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 u/s 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. An individual can start investing in these funds at Rs. 500 through Groww, Kuvera, Zerodha and INDmoney.
So, you can consider tax benefits from the above-mentioned Sections!
Ans: Form 10BA is easily available from different sources, such as the HR department of any reputed organisation 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.
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