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Section 80GG of the Income Tax Act, 1961 is dealing with House Rent Allowance (HRA) deduction for the calculation of the total tax liability of an individual. If an individual is paying rent for any furnished or unfurnished rented property and is not reimbursed by the employer for the same, then the individual can claim a deduction under Section 80GG for the rent paid. If any individual is claiming house rent allowance(HRA), then they cannot claim a deduction under Section 80GG.

Section 80GG is applicable to self-employed individuals as well as salaried persons. So if the individual is operating any business, he/she is as eligible for the deduction as a salaried employee of any organization. When compared to Section 10, the limit under Section GG is quite low. In a lot of cases, the individuals can claim a deduction of not more than Rs. 60,000 in a year. The rents have grown exponentially across the country and thus the maximum deduction that can be claimed is less compared to the other sections.

Eligibility to Claim Deduction under Section 80GG

  • The eligibility to claim the deduction is valid for self-employed, salaried individuals, HUFs. Companies are not allowed to claim this deduction
  • HRA should not be part of the package of the individuals and self-employed individuals should be paying rent for any furnished or unfurnished property.
  • The individual, minor or his spouse should not own a property in the city where they have rented the property and are claiming a deduction under Section 80GG
  • The individual should not be carrying out any commercial or business property in the rented out property.
  • The individual should not own any self-occupied in any city if they are claiming a deduction under Section 80GG.
  • Section 80GG excludes the owner of the property value which is determined under two subsections of section 23. As both these deal with self-occupied property, the taxpayer can claim the deduction if the property is let out or deemed to be let out. However, the rebate is not applicable to deductions claimed under this section.

Calculation of Deduction under Section 80GG

The taxpayer can claim the least of the three amounts given below as deduction under section

1. 25% of adjusted annual income

2. Amount paid as actual rent minus 10% of adjusted total income

3. Rs. 5000 per month or Rs. 60,000 annually

Adjusted total income is Gross total income except for long term capital gain, short term capital gain, income under 115A and 115D and all deductions under 80C to 80U (deducted from the gross total income).

Let us take an example and look at how to calculate the deduction under Section 80GG

ParticularsAB
Adjusted total income2,00,0001,80,000
Total rent payable80,00060,000
Conditions
25% of annual income50,00045,000
5,000 per month60,00060,000
Yearly income - 10% of adjusted income60,00042,000
Deduction available50,00042, 000

As one can see, A can avail more tax deduction than B as the adjusted total income of A is more than that of B. If we see, 25% of annual income is a clause that is applicable in the first case. But, the adjusted total income when calculated gives the deduction quantum to A more than that of B.

Exceptions under Section 80GG

If you are conducting a commercial or business activity in the place where you wish to avail the deduction under Section 80GG, this deduction is not applicable and the taxpayer cannot avail this deduction.

You cannot claim a deduction if you claim the benefit of an owned house in a location other than the above as self-occupied property.

Some taxpayers, when they are living as a joint family and want to claim a deduction under this section, show that they are paying rent to their family and can claim a deduction on the same basis. But, the family members will have to show an income from house property in this case. A lot of taxpayers practice this with their parents. They show that the rent is paid to their parents and thus can claim a deduction on this basis. The parents then show an income in their income tax return.

The real estate markets have really taken a u-turn and thus it is highly likely that any deduction would be allowed other than Rs. 60,000 under the tax system. Also, if the taxpayer is paying rent that is less than Rs. 5,000 per month, it is altogether exempt from tax and thus no deduction will be available under Section 80GG. A lot of organizations have a salary offered to their employees which is inclusive of house rent allowance which in turn makes the taxpayer ineligible for the deduction under this section.

What is the Procedure for Claim Deduction?

For claiming a tax deduction, the taxpayer should fill up form 10BA and submit it. It is a detailed form which has specifications of the rent paid etc. The tax offices are the most popular places for availing of this form. Nowadays since many organizations provide house rent allowance, the forms are available with their human resource departments. The details that need to be filled in the form are given below

  • The complete address of the taxpayer consists of the postal code of the place for which the taxpayer wishes to claim a deduction
  • Name of the assessee and the PAN card number of the assessee.
  • Mode of payment of the rent by the taxpayer. This helps in the process of scrutiny if there is any.
  • Tenure for which the taxpayer has resided in the rental property during the year
  • The amount of rent paid has to be declared in the form by the taxpayer
  • The address and other details of the property owner shall be declared by the taxpayer. These include the full name, PAN card number etc.
  • The taxpayer should declare that their spouse or minor child is not owning any other residential property
  • If the rental amount exceeds Rs. 1,00,000 in a year the PAN number of the owner of the rented property is mandatory.
  • The form will contain all the necessary information of the taxpayer and the owner of the property for the purpose of claiming a deduction under Section 80GG.

What is Section 10(13A)?

This deduction can be claimed by salaried persons only. The taxpayer who is on the payroll of any organization can get a deduction of least of the following

1. 50% of basic salary if you live in metro cities and 40% of basic salary if you live in any other city

2. Rent minus 10% of basic salary

3. Actual HRA

HRA should be a part of the salary package for claiming this deduction. The deduction can be availed only for the period the taxpayer has resided in the accommodation. To claim the benefit the tenant has to also provide the actual rent.

FAQS

1. What is 80GG in Income Tax?

It is a section that provides deduction based on rent paid by the taxpayers

2. What is 80GG rent paid?

It is a deduction availed under chapter VI A of the Income Tax act, 1961

3. Can house rent be deducted from taxes?

HRA is an allowance in Income Tax. It means a salary payment received towards rent payment is allowed as a deduction

4. How much rent income is tax-free?

A person is exempt to pay tax if the Gross Annual Value of the property is less than Rs. 2.5 lakhs.

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