To claim a deduction under Section 80GG, an individual must reside in a rented property and not own any property in the same city. If the employer provides a Home Rent Allowance (HRA) as part of the monthly salary, the individual cannot claim this deduction.
Section 80GG deduction applies to both salaried and self-employed professionals. Therefore, business owners are also eligible for tax deductions under this section. Individuals living on their parents’ property can also avail of Section 80GG benefits. However, they must sign a rental agreement with their parents and pay rent to them. The rent paid to parents will be taxable when filing income tax returns.
Section 80GG: An Overview
Section 80GG permits an individual to claim a deduction on the rent paid for a furnished or unfurnished house used for their residential accommodation.
Deductions refer to the amount subtracted from the year’s gross income to arrive at the net taxable income on which the income tax is levied.
Who qualifies to avail of deductions under Section 80GG?
Certain conditions must be met to be eligible for deductions under Section 80GG:
- To claim a deduction under section 80GG, Form 10BA must be filled out with rent payment details.
- You can claim a deduction under this section if you are self-employed or a salaried individual without the HRA component in your CTC.
- If you are a salaried individual, you must not receive any HRA or RFA benefits to qualify for the benefit of section 80GG.
- Under this section, you can claim a deduction for any residential property—unfurnished, furnished, or semi-furnished—where you reside as a tenant.
- Neither you, your spouse, your minor child, nor the HUF of which you are a member should own any residential accommodation where you currently reside, perform office duties, or conduct business or profession.
- Benefits under section 80GG will not be allowed if you own any self-occupied house property.
- Companies are ineligible to claim deductions under this provision for their rental expenditures. Only individuals can avail of this deduction.
- Any other property you own, such as land, buildings, shares, patents, trademarks, jewellery, etc., would be considered a capital asset.
How are deductions under Section 80GG calculated?
Deductions under Section 80GG are calculated based on the least of the following three amounts:
- Rs. 5,000 per month or Rs. 60,000 annually.
- 25% of the individual’s adjusted total income.
- The amount derived by subtracting 10% of the individual’s adjusted total income from the total rent paid during the financial year.
Adjusted total income denotes the gross total income after reducing specific components such as LTCG, STCG u/s 111A, and all deductions u/s 80C to 80U except the deduction under this section.
For example, let’s consider a scenario:
Vanshika earns an adjusted total income of Rs. 6 lakh p.a. She resides in Delhi in a rented flat and pays a rent of Rs. 16,000 per month, totalling Rs. 1,92,000 annually.
Now, based on the criteria mentioned above, the deductions can be calculated as follows:
- Rs. 60,000 annually
- 25% of Rs. 6,00,000 = Rs. 1,50,000
- Rs. 1,92,000 – (10% of Rs. 6,00,000) = Rs. 1,32,000
In this scenario, the least of these three amounts is Rs. 60,000. Therefore, Vanshika can claim a deduction of Rs. 60,000 per year on her total gross income for the rent she pays.
Who can claim Deductions under Section 80GG?
Individuals residing in rented residential properties who do not receive any House Rent Allowance (HRA) from their employer are eligible for this deduction.
Exceptions
Specific scenarios may disqualify you from claiming the deduction:
- If you own a house in the city or town where you are employed or engaged in self-employment, or if you own a house anywhere in India.
- Individuals living with their parents in the parental house without paying rent cannot claim this deduction.
The Trick: If you reside with your parents or relatives and wish to claim the deduction under Section 80GG, you can still pay them rent, even if it’s just on paper. However, your parents or relatives must declare the rental income in their tax returns.
How do you claim a deduction under Section 80GG?
To claim the deduction under Section 80GG, you need to provide the following details:
- Your name
- The address of the rented residential property, including the postal code
- Your PAN details
- The duration for which you have been residing in the rented property
- The amount of rent paid and the payment method (cash, bank deposit, etc.)
- The name and address of the landlord
- A declaration using Form 10BA states that you do not own any residential property in your name, your spouse’s name, your minor child’s name, or the Hindu Undivided Family of which you are a member.
Documents required to claim the deduction under section 80GG?
Documents Needed to Avail Deduction under Section 80GG:
- Rent Receipts: Rent receipts for each month specifying the name and address of the landlord, amount of rent paid, period covered by the rent, and a revenue stamp (if applicable).
- Rent Agreement: Although not mandatory, a copy of the landlord’s rent or lease agreement can be supporting evidence.
- Declaration in Form 10BA: A declaration in Form 10BA is required to claim the deduction under Section 80GG if the annual rent paid exceeds Rs. 1,00,000.
- PAN of the Landlord: If the yearly rent exceeds Rs. 1,00,000, the landlord’s Permanent Account Number (PAN) must be furnished.
- Other Supporting Documents: Additional documents, such as bank statements or cancelled checks, demonstrating the rent payments made to the landlord can be kept for further verification if needed.
Final Words
Section 80GG serves as a financial relief for individuals who do not receive HRA and are paying rent for their residential accommodation. By utilising this provision, you can significantly reduce your taxable income and ease your financial burden. Maintaining proper documentation and adhering to the eligibility criteria to claim deductions under Section 80GG is essential.
Whether you are a tenant in a metro city or a small town, Section 80GG can help you make the most of your hard-earned money while enjoying the comforts of rented accommodation. Embrace this deduction to achieve financial stability and peace of mind while renting your home.