Section 80GG Deduction In 2023: Claim Tax Deduction For Rent Paid

If a person pays a house rent without getting any House Rent Allowance (HRA) from his/her employer, it is quite likely that his/her take home monthly income will be affected to a large extent. According to Section 80GG of the Income Tax Act, 1961, a taxpayer is eligible to claim a tax deduction on rent paid every year. Read on to know more.

Section 80GG of the Income Tax Act

An employee is eligible to claim a deduction through HRA because it is part of their salary. Even when an employer does not provide an HRA, the taxpayer can claim a deduction under Section 80GG for the rent paid. This claim can be made for both furnished and unfurnished accommodations. However, the provision applies to residential houses only. You can deduct the cost that is paid from your annual gross total income. This is a great way to ease your financial burden while paying taxes.

How much deduction can be claimed under Section 80GG?

The amount of deduction will be the lowest of the following:

  • ₹5,000 per month
  • 25% of the total income (excluding long-term capital gains, short-term capital gains under section 111A, income under Sections 115A or 115D, and deductions under 80C to 80U. The income is calculated before making a deduction under section 80GG).
  • Actual rent paid annually is 10% of the adjusted total income.

Eligibility Criteria to Claim deduction under Section 80GG

The following criteria must be satisfied for a person to claim deductions under Section 80GG:

  • Only Individuals and Hindu Undivided Families(HUFs) can claim 80GG deductions. Businesses or companies are not allowed to claim such tax deductions.
  • The taxpayer must be salaried/self-employed. 
  • Submission of Form 10BA is necessary to show the details of rent paid. Tax deduction for any self-occupied property cannot be granted under this section.
  • You, your spouse, your minor child, or the HUF of which you are a member, do not own any residential accommodation at the place where you are currently residing, performing duties of the office or employment, or executing a business or profession.
  • If you own any place of residence for which you earn rental income, no deduction can be claimed under section 80 GG
  • You cannot claim HRA at any time during the fiscal year for which the deduction under Section 80GG has already been claimed. This is to keep up compliance when an individual changes jobs during a year. If one of the employers gives HRA even for a month, the individual becomes disqualified to claim a tax deduction under this section.

Example 1:

Mr A’s annual income is ₹10 Lakhs and he is not receiving a house rent allowance from his employer. He is paying ₹12,000 monthly as house rent. Let’s calculate the eligible deduction u/s 80 GG for Mr. A.

Based on the above example, Mr. A can claim deduction u/s 80 GG which would be lower of the three:

  • ₹5,000 monthly or Rs.60,000 yearly.
  • ₹44,000 (actual rent paid over 10% of total income)
  • ₹2,50,000 (25% of total income)

The lowest of the three values is Rs. 44,000.. Therefore, Mr A will be able to claim deduction up to ₹44,000. 

Example 2:

Here is another illustration comparing the rent-based 80GG deduction of two different individuals:

Particulars Mr CMr D
Adjusted Total Income (ATI)₹5,00,000₹1,80,000
Annual Rent ₹2,00,000₹70,000
Deductions under section 80GG (lower of below three)
Annual Rent – 10% of ATI₹1,50,000₹52,000
Rs. 5,000 each month₹60,000₹60,000
25% of ATI₹1,25,000
Deductions applicable₹60,000₹45,000

The above table indicates that Person 1 gets a tax deduction of Rs. 60,000, whereas Person 2 gets a deduction of Rs. 45,000, under this provision.

The Exceptions of Section 80GG

Tax Deduction under Section 80GG of the Income Tax Act, 1961 cannot be claimed if:

  • An individual owns a residential property in the same place where they live or work.
  • An individual stays in a city while owning a house or property in another city

If the rent paid by the taxpayer is less than ₹5,000 per month, then it is automatically exempt from tax and no deduction will be available under Section 80GG. Many organisations have a salary structure offered to their employees that is inclusive of HRA, making the taxpayer ineligible for the deduction under this section.

Conclusion

Section 80GG takes into account a salaried/self-employed person’s need to save tax by claiming a deduction under this section. It provides a way to plan taxes properly because rent can be a big part of a salaried person’s budget. The conditions and other requirements to claim benefits under this section have been discussed at length in the above paragraphs 

Frequently Asked Questions

What is the meaning of adjusted total income?

Adjusted total income is the net income after subtracting the deductions under certain sections of the Income Tax Act.

From where can I get Form 10BA?

Form 10BA is available on the Income Tax Department’s website.

Can I claim benefits under Section 80GG if the property is in the name of my Father?

Yes, you can claim benefits under Section 80GG of the Income Tax Act if the property is owned by your father.

Credit Principal at Wint Wealth
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