Maximizing Tax Benefits: A Guide to Section 80GG Deductions for Rent

Understanding Section 80GG: A Key Deduction for Rent Payments

The Income Tax Department offers taxpayers numerous deductions that can lower taxable income and, consequently, tax liabilities. While many taxpayers are familiar with popular deductions under sections such as 80C, 80CCD, 80D, and 80G, there are lesser-known provisions that can also provide significant benefits. One such provision is Section 80GG, which allows taxpayers to claim a deduction for rent paid during the year. This deduction is applicable to both salaried individuals and self-employed persons.

Conditions to Claim the Deduction

To qualify for the deduction under Section 80GG, the following conditions must be met:

Eligibility: Only individuals and Hindu Undivided Families (HUF) are eligible for this deduction.
No House Rent Allowance (HRA): The taxpayer must not receive House Rent Allowance as part of their salary during the year. If an Employer provides HRA, the taxpayer must claim the deduction under the relevant provision but cannot claim an additional deduction under Section 80GG.
Property Ownership: The taxpayer, their spouse, or minor child must not own any residential property at the location where they ordinarily reside or perform their office duties or conduct their business or profession. It is important to note that the taxpayer's family may own property elsewhere.
Declaration of Other Properties: Any residential properties owned by the taxpayer should be declared as deemed let-out properties, meaning they should not be self-occupied.

Amount Eligible for Deduction

The deduction amount is determined by the least of the following three criteria:

A) INR 5,000 per month
B) 25% of Adjusted Total Income*
C) Actual rent paid less 10% of Adjusted Total Income*

*Adjusted Total Income = Gross Total Income excluding Long-Term Capital Gains (LTCG), Short-Term Capital Gains (STCG), and other deductions under sections 80C to 80U.

Calculation Example

Consider Mr. K, a businessman, with a total income of INR 5,60,000 for the financial year 2020-21. He pays a house rent of INR 12,000 per month in Mumbai. The deduction can be calculated as follows:

Actual Rent Paid – 10% of Total Income:
(12,000 * 12) - (10% * 5,60,000) = 88,000
25% of Total Income:
25% * 5,60,000 = 1,40,000
INR 5,000 per month:
= 60,000

Thus, the deduction available will amount to INR 60,000.

Procedure to Claim the Deduction

Taxpayers must file Form 10BA, which details the rent payments made. This form serves as a declaration for individuals claiming deduction under Section 80GG for rent paid on rental properties.

Frequently Asked Questions

Can an individual claim a deduction if living with parents?
Yes, an individual residing in their parents' house may claim this deduction per Section 80GG, provided they establish a rental agreement with their parents. The parents will need to declare the rent received in their tax returns.
Can one claim a deduction if the house is jointly owned by a son/daughter and their parents?
No, if the house is jointly owned between the taxpayer’s son/daughter and their parents, the taxpayer cannot claim the rent deduction because the criteria for eligibility are not fully met.
Are Non-Resident Individuals eligible for this deduction?
Yes, Section 80GG applies to both Resident and Non-Resident Individuals, provided they meet the stated conditions.

Conclusion

This article aims to provide comprehensive knowledge about Section 80GG, assisting taxpayers in utilizing this deduction to lower their taxable income during income tax return filing.