BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Deduction in respect of Rents Paid [Section 80GG]

Section 80GG of the Income Tax Act allows individuals to claim deductions for the rent paid when they do not receive House Rent Allowance (HRA) from their employer. This blog post explains the eligibility criteria and the amount of deduction allowed under Section 80GG.

Essential Conditions for claiming Deduction under this section:

(1) This deduction is allowed to an individual.

(2) The individual should pay rent for his residential accommodation, whether furnished or unfurnished.

(3) The individual is either a self-employed person or if he is an employee, he is neither entitled to any house rent allowance nor a rent-free accommodation.

(4) The individual, his or her spouse or minor child or an HUF of which he/she is a member, does not own any residential accommodation at the place where such an assessee ordinarily resides or at the place where he works or carries on his business or profession.

If the assessee, i.e., the individual owns any residential accommodation at any place, other than the place of residence or work of the assessee, then such property should not be assessed in the hands of the individual as self-occupied property.

(5) Such individual should fulfill 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. The assessee must file a declaration in Form No. 10BA along with the return of income to claim deduction under section 80GG.

Quantum of Deduction:

The deduction shall be the minimum of the following amounts:

(i) Excess of rent paid over 10% of’ Adjusted Total Income’;

(ii) 25% of the “Adjusted Total Income”;

(iii) Rs.5,000 per month : Rs.5,000 x12=Rs.60,000

Adjusted Total Income:

Adjusted Total Income, for this purpose, means the “Gross Total Income” as reduced by:

(i) long-term capital gains if any, which have been included in the “Gross Total Income”;

(ii) short-term capital gains of the nature referred to in section 111A (i.e., short-term capital gain on transfer of shares through a recognised stock exchange which are taxable @ 15%);

(iii) all deductions permissible u/s 80C to 80U excepting deduction under this section i.e., section 80GG.

(iv) income referred to in section 115A, 115AB, 115AC or 115AD. These sections relate to incomes of NRIs and foreign companies etc. which are taxable at special rate of tax.

Ownership Criteria:

The taxpayer or their spouse or minor child should not own any residential accommodation at the place where they are claiming the deduction.
If the taxpayer owns residential property at any other location, it will not affect their eligibility for this deduction as long as they are not claiming deductions on that property.

Declaration:

To claim this deduction, the taxpayer needs to file Form 10BA, providing details of the rent paid, the landlord's name and PAN (if available), and other relevant information.

No Need for Receipts:

Unlike some other deductions, there is no requirement to submit rent receipts to claim the deduction under Section 80GG. However, maintaining records of rent payments and a duly filled Form 10BA is advisable for documentation purposes.

Example

Let's understand the deduction with the help of an example. Mr. Kumar is a self-employed individual who pays a monthly rent of Rs. 15,000. His total income for the year is Rs. 6,00,000. To calculate the deduction under Section 80GG, Mr. Kumar can claim the least of the following amounts:

Rent paid minus 10% of total income: Rs. 15,000 - (10% of Rs. 6,00,000) = Rs. 9,000
25% of total income: 25% of Rs. 6,00,000 = Rs. 1,50,000
Rs. 5,000 per month: Rs. 5,000 x 12 = Rs. 60,000

Therefore, Mr. Kumar can claim a deduction of Rs. 9,000 under Section 80GG.

Important Points to Note

There are a few important points to note regarding the deduction under Section 80GG:

The deduction is available only to individuals and not to Hindu Undivided Families (HUFs) or other entities.
The individual needs to file Form 10BA along with their income tax return to claim the deduction.
The individual needs to retain the rent receipts and other supporting documents as evidence of rent paid.
The deduction is not available if the individual is claiming any other housing-related deductions such as home loan interest.
The deduction is available on a yearly basis and needs to be claimed for each assessment year separately.

Conclusion

Section 80GG of the Income Tax Act, 1961 provides a deduction to individuals who do not receive HRA and pay rent for their accommodation. This deduction helps reduce the tax liability of individuals who do not own a house and rely on rented properties for their residential needs. It is important for individuals to understand the eligibility criteria and calculation method to effectively claim the deduction and optimize their tax savings.