Section 80GG deduction for Rent paid

Are you a self-employed professional or salaried employee  who pays rent but doesn’t receive a house rent allowance (HRA)? Section 80GG of the Income Tax Act could help you save on taxes! This lesser-known provision allows eligible taxpayers to claim a deduction on rent paid, easing the financial burden.

Let’s dive into the details of Section 80GG, eligibility criteria, deduction limits, and the process of claiming it.

What is Section 80GG?

Section 80GG provides tax deductions for individuals who pay rent for residential accommodation but do not receive HRA as part of their salary. This provision is particularly beneficial for self-employed individuals or employees in roles where HRA isn’t part of the compensation package.

Eligibility Conditions for Section 80GG Deduction

To claim a deduction under Section 80GG, the following conditions must be met:

1. No HRA Received: The taxpayer must not receive HRA from their employer.
2. Residential Accommodation: The taxpayer, their spouse, or minor children must not own a house in the same city where they reside.
3. Income Sources: This deduction applies to both salaried individuals and self-employed professionals.
4. Tax Filing: The taxpayer must file Form 10BA, declaring that they are not claiming HRA benefits.

How is the Deduction Calculated?

The amount of deduction under Section 80GG is the least of the following:

1. ₹5,000 per Month: A maximum of ₹60,000 per annum.
2. 25% of Adjusted Total Income: Adjusted total income is total income minus long-term capital gains, short-term capital gains under Section 111A, and deductions under Section 80C to 80U.
3. Rent Paid Minus 10% of Adjusted Total Income: Only the amount exceeding 10% of adjusted total income is considered.

For example:

• Adjusted Total Income: ₹6,00,000
• Annual Rent Paid: ₹1,20,000
• 10% of Adjusted Income: ₹60,000

Deduction Calculation

• ₹5,000 per month = ₹60,000
• 25% of ₹6,00,000 = ₹1,50,000
• ₹1,20,000 – ₹60,000 = ₹60,000

The least of these three amounts (₹60,000) is the deductible amount under Section 80GG.

How to Claim Section 80GG Deduction?

1. File Form 10BA: Submit Form 10BA online through the Income Tax Department’s e-filing portal.
2. Provide Details of Rent Payment: Include details such as the landlord’s name, address, and PAN (if annual rent exceeds ₹1,00,000).
3. Keep Documents Handy: Maintain rental receipts, rent agreements, and Form 10BA acknowledgment for records.

Steps to File Form 10BA Online

Filing Form 10BA is a straightforward process via the Income Tax e-filing portal. Here’s how you can do it:

Step 1: Log in to the Income Tax Portal

Visit www.incometax.gov.in and log in using your credentials.

Step 2: Navigate to ‘e-File’ Section

• Go to e-File > Income Tax Forms > File Income Tax Forms.
• Select Form 10BA from the list.

Step 3: Fill in the Details

Provide the following information:

• Address of the rented property.
• Rent paid during the financial year.
• PAN of the landlord (mandatory if rent exceeds ₹1 lakh annually).

Step 4: Submit the Form

Review the details, submit the form, and download the acknowledgment for your records.

Can I claim deductions under Section 80GG if I own a house in another city? 

Yes, as long as you do not reside in that house and it is in a different city from your place of work.

Is there a maximum limit to the 80GG deduction?

The maximum deduction is capped at ₹60,000 per annum or ₹5,000 per month.

Conclusion

Section 80GG provides significant relief to taxpayers who pay rent but do not receive HRA benefits. By understanding the eligibility criteria and claiming process, you can optimize your tax savings effectively. Ensure you file the necessary documents and keep a record of your rent-related expenses for hassle-free deductions.

Stay informed and leverage tax benefits to ease your financial burden! For more personalized advice, consult a chartered accountant.