Section 80GG of Income Tax Act- Deduction of Rent Paid, Eligibility & Calculation

Topic Covers:

1. Introduction
2. Applicability
3. Conditions to be satisfied
4. Quantum of deduction
5. Example
6. Documents required for Form 10BA

Introduction:

Section 80GG of the Income Tax Act provides a deduction on account of payment of house rent. Most salaried employees get the benefit of a house rent allowance. To provide relief benefits to individuals who do not get a house rent allowance. This deduction is available to individuals not only who are earning income as an employee but also as a businessman.

Applicability:

An Individual is eligible to claim the deduction under section 80GG, irrespective of the residential status and citizenship of the individual.
Individuals, whether earning income from salary or business can avail of this deduction.

Conditions to be satisfied:

1. No House rent allowance: The individual should not receive a House Rent Allowance (HRA).
2. No house at the place of employment: He or his spouse or minor child or HUF of which he is a member, should not own any residential house at a place where the assessee resides, perform the duties of his office, or employment or carries on his business or profession.
3. No claim for the benefit of self-occupied house property: Assessee should not treat any residential house situated at other places as self-occupied property under section 23(2)(a) or 23(4)(a).
4. Proof of payment of rent: A declaration in Form No. 10BA should be filed for expenditure incurred by him towards payment of rent.

Quantum of deduction:

Minimum of the following:

1. ₹ 5,000 per month;
2. 25% of Adjusted Gross total income for the year (referred to as Adj. GTI); or
3. The excess of actual rent paid for accommodation over 10% of Adjusted Gross total income.

Arithmetically, [Rent paid - 10% of Adj. GTI]
The deduction is available if the house rent is paid. This rent must be paid for a residential house property whether furnished or unfurnished.

Note:

Calculation of Adjusted Gross Total Income:

Gross total income	xxxx
Less:  Long - term capital gain	(xxxx)
STCG taxable u/s 111A	(xxxx)
All deductions u/s 80’s other than sec. 80GG	(xxxx)
Income u/s 115A, 115AB, 115AC, etc	(xxxx)
Adjusted GTI	xxxx

Let’s understand this with an example:
Suppose Mr. Ram earns having adjusted total income of ₹  8.5 lakh p.a. He lives in Mumbai in a rented apartment and pays a rent of ₹ 35000 per month. So, her total rent per year is ₹ 4,20,000. Now, as per the above-mentioned criteria, the three possibilities can be –

1. 5,000 per month = ₹ 60000 annually
2. 25% of Adjusted Gross total income for the year = 25% of 8,50,000 = ₹ 2,12,500
3. [Rent paid - 10% of Adj. GTI] = 4,20,000- (10% of 8,50,000) = ₹ 3,35,000

So, the least of these three amounts is ₹ 60000. Mr. Ram can claim and get a deduction of ₹ 60000 per year on the total gross income for the rent he paid.

Tax points to be considered:

While calculating Adjusted GTI, casual income like winning from lotteries etc. shall be included.
In case, of accommodation at concessional rent is provided by the employer. Where an assessee has been provided an accommodation by his employer at concessional rent, then rent paid, by him shall be -

• Deducted while valuing such perquisite; and
• Eligible for deduction u/s 80GG.

Note:

The most important thing one should notice is that from the assessment year 2024-2025 the new tax regime under section 115BAC will be the default tax regime and deduction under this section is not allowable as per the provision of the section.

In other words, a person paying tax as per section 115BAC i.e. default tax regime cannot take benefit of this section. To take the benefit one need to opt for the old tax regime.

Documents required furnishing Form 10BA:

To claim the deduction under this section assessee is required to furnish the form 10BA.

• PAN of the Landlord
• Copy of rent agreement or rent receipts for the address of the property and other details.

FAQs

Q. Can, an individual having business income take benefit of section 80GG?
Yes, an Individual earning business income can take benefit of this section subject to conditions.

Q. An individual owns a house property in a city other than the city of his employment. Can he claim a deduction under this section?
Yes, the individual can claim the benefit of this section. The rented house and owned house are situated in two different cities.

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