Section 80GG Of Income Tax Act, 1961: Tax Claim, Eligibility, Exceptions And Deductions
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!
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.
Who Can Claim Section 80GG Tax Deductions?
An individual must satisfy the following conditions to claim deductions:
- HUFs (Hindu Undivided Family) and sole individuals are eligible to claim tax 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 this 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 in 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 returns, 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 – How To Use Online Income Tax Calculator?
How to Submit Form 10BA?
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.
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.
How Much Amount Is Eligible for Deductions?
The lowest of the following will be taken as the deduction under Section 80GG of the Income Tax Act:
- 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.
How to Calculate Tax Deduction u/s 80GG?
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.
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 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!
Frequently Asked Questions
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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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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