Section 80GG of Income Tax Act provides tax saving in the form of “deduction for rent paid” from gross total income if a person is residing in a rental house and paying the rent.
It is the best way of tax saving, if your place of working is at a
far distance from your original house and you have a house on rent near your
working place.
Even if you do not own any house and you are residing in a rental
house, this Section 80GG is also
applicable for you and you can avail benefit of rental payments.
A person becomes eligible under this section after fulfilling certain conditions under section 80GG of Income Tax Act 1961, which are explained in this article:
What is deduction for rent paid under Section 80GG of Income Tax?
Under Section 80GG of
Income Tax Act, you can claim deduction
for the rent paid. If you are residing in a rental house and paying the rent,
then you can claim deduction of such rent from gross total income while filing
Income Tax return.
For claiming deduction of rent paid, a person has to fulfill
certain conditions. One of such important conditions is that a person claiming
deduction under Section 80GG should not get HRA (House Rent Allowance) from his
employer. If he is getting HRA, then he became ineligible from claiming such
deduction in that year.
What are the eligibility conditions for claiming deduction under Section 80GG?
For availing deduction for the payment of rent, one should have to
fulfill the following conditions:-
- Both salaried and self-employed are eligible for this deduction.
- That salaried and self-employed must be individual or HUF means companies are not eligible for this deduction. Only individuals and HUF can claim this deduction of rent payment.
- Person claiming this deduction should not get HRA (House Rent Allowance) from his employer. If he is receiving HRA then he became ineligible for availing this deduction.
- He must be residing in a rented house and paying the rent.
- He should not have any house in his own name (or in the name of spouse or minor child or in the name HUF in which he is a member) at the place of his work (or where he normally resides). In other words, he should not be the owner of a house at the place where he works or where he resides.
Example:
Mr. X is doing his job in Mumbai and there he resides in a rental
house. He also has the house property in Mumbai itself which is in the name of
his wife.
But instead of living in his own house, he resides in a rental
house so that he can claim deduction for the same under Section 80GG of Income
Tax Act.
So, in this case Mr. X becomes ineligible for claiming deduction
under this section because his wife has a house at the place where Mr. X works.
He may have a house at any other places other than mentioned
above. But that house should not be declared as self-occupied. Then in such a case
the owned property is considered as let out property.
How to calculate the deduction for rent paid under Section 80GG
of Income Tax Act?
If a person is satisfying all the conditions mentioned above then
he can claim deduction for rent paid under Section
80GG.
The deduction is allowed from gross total income during filing
ITR.
The amount of deduction
under Section 80GG is least of the following:-
- Rs. 5000 p.m. OR
- Rent paid - 10% of Adjusted Total Income OR
- 25% of Adjusted Total Income.
Example:
Mr. X paid rent Rs. 10000 per month and adjusted total income is
Rs. 90000 (calculation of adjusted total income explained in the following
paragraphs).
Deduction under Section 80GG shall be least of the following i.e.:
1) Rs. 5,000 * 12 months = Rs. 60,000 OR
2) Rent paid - 10% of adjusted total income
= (Rs. 10000 * 12) - 10% * Rs. 90000
= Rs. 120000 – Rs. 9000
=Rs. 111000 OR
3) 25% of adjusted total income
=25% * Rs. 90000
= Rs. 22500
Least of the following above is Rs. 22500, so the deduction under
Section 80GG allow is Rs. 22500.
How to calculate adjusted total income under section 80GG of
Income Tax Act?
Computation of Adjusted Total Income under section 80GG
|
Particulars |
Amount |
|
Gross Total Income Less: Long term Capital Gain (LTCG) U/s 112 Less: Short term Capital Gain U/s 111 A Less: Deduction U/s 80C to 80U (except U/s 80GG) Adjusted Total Income |
---- ---- ---- ---- ---- |
Example
Mr. X has a salaried income of Rs. 600000 yearly, LTCG u/s 112 is
Rs. 500000 and deduction u/s 80C is Rs. 100000. He paid rent in connection with
a residential house of Rs. 14000 per month.
Solution: Total Income
|
Particulars |
Amount |
|
Income under the head salaries Income under the head Capital Gain LTCG U/s 112 |
Rs. 600000 Rs. 500000 |
|
Gross Total Income Less: Deduction Section 80C Rs. 100,000 Section 80GG (Note) Rs. 60,000 |
Rs. 1100000 Rs. 160000 |
|
Total Income |
Rs. 940000 |
Note: Computation of deduction under section 80GG
Calculation of Adjusted
Total Income under section 80GG:
|
Particulars |
Amount
Rs. |
|
Gross Total Income Less: LTCG U/s 112 Less: Deduction U/s 80C
|
1100000 (500000) (100000) |
|
Adjusted Total Income |
500000 |
Deduction U/s 80GG shall be
least of the following:
1) Rs. 5000 * 12 = Rs. 60,000 OR
2) Rent paid - 10% of Adjusted Total Income
= (Rs. 14000 * 12) – 10% Rs. 500,000
= Rs. 168000 – Rs. 50,000
= Rs. 118000 OR
3) 25% of Adjusted Total Income
= 25% Rs. 500,000
= Rs. 125,000
Least of the following is 60,000. So deduction u/s 80GG is Rs.
60,000.
How to fill Form 10BA for claiming deduction under section 80GG?
For availing deduction of rent paid under section 80GG, one has to compulsorily fill the form 10BA. This form
can be filled online on Income Tax Portal.
You have to fill certain
details in this form like:
- Name, PAN of assessee
- Address
- Rent amount, name and address of the landlord etc.
- If the rent amount exceeds Rs. 100000 in the financial year then the PAN of the landlord (property owner) is mandatory to be mentioned.
Form 10BA is simply a declaration.
Summary
Section 80GG of Income Tax Act allows deduction on rent paid for those who reside in rented houses. Person can claim deduction for rent payment on fulfillment of certain conditions as mentioned above.