Section 80GG of Income Tax Act: All you need to know
Section 80GG of the Income Tax Act deals with tax deductions allowed for the payment of rent by self-employed individuals, and salaried employees who do not receive House Rent Allowance from their employers. Taxpayers can show the house rent paid as a deduction from their annual income and enjoy lower tax liabilities.
Section 80GG helps individuals who cannot claim a tax deduction for rent under Section 10 (13A) of the Income Tax Act. The government has made provisions under the tax laws to allow self-employed and salaried individuals not receiving HRA to enjoy tax benefits like salaried employees who are paid HRA from their employers.
Who Can Claim Tax Deductions Under Section 80GG?
Any individual who is paying rent but not receiving HRA from his/her employer is eligible to Sec 80GG deduction. This includes:
- Self-employed Individuals: A self-employed person earning from his/her business or from any other source is entitled to claim tax deduction under Sec 80GG of Income Tax Act provided that he/she is not receiving HRA from the employer if any. For example, if you are running a grocery store and earning from the same, you can show the rent paid as deductions while filing ITR and reduce your taxable income.
- Salaried Employees: Most salaried employees receive HRA along with their basic income and they can claim tax deductions under Section 10 (13A). However, there are many salaried employees as well who do get separate HRA from their employer. These salaried persons can use Section 80GG of the Income Tax Act and enjoy tax benefits similar to the self-employed individuals.
Condition Under Section 80GG to Claim Tax Deductions
You have to meet the following conditions in order to be eligible for claim tax exemptions provided under Section 80GG:
- You should be either salaried or self-employed
- You need to fill out Form 10BA with all the necessary details related to the rent paid during the financial year
- In case you are salaried-employee, you should not have received HRA from your employer in any month of the year for which you are filing ITR and claim tax deductions under Section 80GG
- You should not be living, performing office duties, or operating any business or profession at a place where you, your spouse, your minor child, or HUF of which you are a member own a place for residential accommodation
- You should not be owning any residential accommodation property at any place and the value of the property is defined as per the provisions laid under Section 23(2)(a) or Section 23(4)(a)
Maximum Deductions Allowed Under Section 80GG
If you satisfy all the aforementioned conditions, then you can claim the least of the following amount as deduction under Section 80GG:
- Rs 60,000 every year (Rs 5,000 per month)
- 25% of your adjusted total annual income
- Actual rent paid in the financial year minus 10% of the adjusted total annual income
Let us understand this with an example:
Suppose you pay a rent of Rs 4,000 per month, which translates to Rs 48,000 annually and let us consider that your adjusted income is Rs 4 lakh per annum. The maximum amount that you can claim as tax deduction can be understood from the table:
|Condition||Maximum tax deduction|
|Rs 60,000 annually||Rs 48,000|
|25% of the adjusted total income||Rs 1 lakh|
|Actual rent paid minus 10% of the adjusted total income||Rs 48,000 - 10% of Rs 4 lakh = Rs 8,000|
|Satisfied Condition (Least of the all)||Rs 8,000|
So you can claim a tax deduction of Rs 8,000 per annum as it is the least amount as per the limits given under Section 80GG.
How to Claim Tax Deduction Under Section 80GG?
Claim deduction under Section 80GG is easy. You can follow these few simple steps and enjoy tax benefits without any hassle.
Step 1: Calculate your annual rent by adding all the rent amount paid to the landlord every month. Note: You cannot claim deduction for the month in which you haven’t paid any rent.
Step 2: Keep all your rent payment receipts as you have to furnish all the receipts while filing ITR. Make sure to get the bank account statement or credit card bill as well from where you can show the debited amount sent to the landlord as rent.
Step 3: You have to fill Form 10BA that includes all relevant details of rent payment such as your name, financial year, rent paid, details of the residential accommodation, details of the landlord, etc.
Step 4: Assess the amount of deduction you can claim according to the total rent paid and the limits prescribed under Section 80GG.
Step 5: File the ITR after confirming all the details. Also, if you have paid rent over Rs 1 lakh in the financial year, you will also have to submit PAN details of the landlord.
- Am I allowed to claim deduction under Section 80GG if I am not living in a rented residential property?
No, you cannot claim tax deduction under Section 80GG if you are not living in a rented property. You have to submit all rental receipts in order to claim deductions on your taxable income.
- I split the rent with my roommate but the rental agreement is in his name, how can I claim deductions in this case?
You cannot claim tax benefits provided under Section 80GG without having the rental agreement under your name. You can ask your landlord to renew the rental agreement both and include you and your roommate separately as the renters/tenants.
- What is adjusted annual income?
Adjusted income refers to the total income excluding short term capital gains as per Section 111A, long term capital gains, income under Section 115A and 115D, and deductions under Section 80C to 80U of the Income Tax Act.
- Can non-resident Indians also claim tax deductions under Section 80GG?
Yes, both resident and non-resident individuals can use the provisions given under Section 80GG to enjoy tax benefits on rent paid.
- How Section 80GG is different from Section 10 (13A) of the Indian Tax Act?
Section 80GG allows self-employed and salaried employees who do not get HRA to claim tax deduction benefits on the payment of rent. Section 10 (13A), on the other hand, is meant for salaried employees who receive HRA from their employers.