Know all about Section 80GG. Learn the essentials of deduction on Rent paid. Check the latest amendments made on the Section 80GG.
How to Claim Deduction under Section 80GG?
A salaried individual who lives in a rented house is eligible to claim House Rent Allowance to lower taxes. Deduction of Rent Paid can be partially or entirely exempt from taxes. The HRA allowance is for expenses related to rented accommodation. If the employee doesn’t live in rented accommodation, this benefit is fully taxable.
Section 80GG of Income Tax Act 1961, a salaried individual can claim the tax deduction for the expenses that they incur towards House Rent paid. Section 80GG provided that a deduction for payment of house Rent has not been claimed under any other section of the income tax act. In other words, if a salaried employee is being given house rent allowance by the respective company and the employee is not eligible to claiming a deduction u/s 80GG.
All other assessees who are neither getting the benefit of House Rent Allowance and nor have they claimed the expense for rent paid under any other section of the income tax act, can claim deduction under Section 80GG.
What is the eligibility to claim the deduction under Section 80GG?
Tax Deduction under Section 80GG for payment of Rent can be claimed at the time of return filing by satisfying the following conditions.
- The taxpayer should not own a house in the place in which he/she live, or work or carry on business.
- Tax deduction on rent paid under Section 80GG is only applicable to an Individual or Hindu Undivided Family.
- The Assessee is either Self-employed or Salaried employee (but does not receive any benefit of deduction under Section 10(13A) for House Rent Allowance).
- The assessee himself or his/her spouse or child including minor child or HUF of which taxpayer is a member should not own any accommodation at the place where he is employed or carries on his business or profession.
- If the assessee owns any property at any place other than the place mentioned above, he should not be claiming the benefit of that property as Self-Occupied Property. That other asset would be deemed to be let-out.
- Assessee must file a declaration in form 10BA by confirming that he paid the rent and fulfill the conditions to claim deduction under Section 80GG.
- Assessee must reside in that house to claim exemption u/s 80GG.
- If the assessee is claiming the deduction as per Section 80GG, he would also be required to furnish a declaration in Form 10BA that he satisfies all the conditions stated above.
Limit of Deduction under Section 80GG
The amount of tax deduction under section 80GG of income tax act, 1961 is allowed as the following mentioned.
- Rs. 5,000/- per month ( limit has been increased from Rs. 24,000/- per annum to Rs. 60,000/- per annum).
- 25% of the total income ( total income is calculated after excluding lone term capital gain, short-term capital gain under section 111A, and income referred to in Section 115A or Section 115D and amount deductible under Section 80C to 80U but before making any deductions under this section.
- The excess of actual rent paid over 10% of the total income. (The total income is calculated after excluding long term capital gain, short-term capital gain under section 111A and income referred to in section 115A or 115D and amount deductible u/s 80C to 80U but before making any deduction under this section).
- Total Income means Total Income of the assessee for the year before claiming any deduction under Section 80GG.
- Moreover, the total rent paid for Furnished or Semi-Furnished House would be considered for the purpose of claiming deduction u/s 80GG.
If finance bill of Budget 2016-17 passed then, you could claim the deduction of Rs. 60,000/- under section 80GG for the rent paid instead of the earlier limit of Rs. 24,000/-
Section 80GG of the Income Tax Act, 1961
Deduction on Rent Paid – Section 80G: In computing the total income of a taxpayer, not having any income falling within clause (13A) of section 10, there shall be deducted any expenditure incurred by him more than 10% of the total income towards payment of rent. (by whatever name called) in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence, to the extent to which such excess expenditure does not exceed two thousand rupees per month or twenty-five percent of his total income for the year, whichever is less, and subject to such other conditions or limitations as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations :
Provided that nothing in this section shall apply to an assessee in any case where any residential accommodation is as follows.
- Owned by the assessee or by his spouse or minor child or, where such assessee is a member of a Hindu undivided family, by such family at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profession.
- Owned by the assessee at any other place, being accommodation in the occupation of the assessee, the value of which is to be determined [under clause (a) of sub-section (2) or, as the case may be, clause (a) of sub-section (4) of section 23].
Explanation – In this section, the expressions “10% of his total income” and “25% of his total income” shall mean ten percent or twenty-five per cent as the case may be, of the assessee’s total income before allowing the deduction for any expenditure under this section.
Computation of deduction on Rent paid – Section 80GG
Example: Mr. Kim Tan annually earns Rs. 3,00,000/- (after all deductions) & pays an annual rent of Rs. 1,50,000/-. In such a case, the deduction allowed would be least of the following:-
Rs. 5,000/- per month i.e. Rs. 60,000/- per annum
Rent paid i.e. 1,50,000 minus 10% of total income i.e. 30,000/- = Rs. 1,20,000/-
25% of total income i.e. Rs. 75,000/-
The least of the above would be allowed as a deduction and therefore Rs. 60,000 would be allowed as a deduction under Section 80GG for the complete financial year.