Introduction
Section 80GG of the Income Tax Act 1961 (“ITA”) recognizes and provides deduction in respect of rent paid by an individual. The purpose of this deduction is to provide relief to individuals who are not allowed to avail HRA benefit due to either non-payable of house rent from their employer or due to the lack of availability of such facility.
This section allows Deduction of the rent paid by him even though he does not have any house property for self-occupation of the occupier. It also includes individuals who are lead payers of rent for the accommodation of their family.
Nature and Scope of Section 80GG
Section 80GG of the ITA 1961 is a provision aiming to provide certain tax relief to individuals by allowing them a deduction from taxable income for payments of a certain amount of rent paid during the financial year. The deduction allowed is subject to certain limits placed under this section.
The section allows the deductor to avail a deduction up to an amount equal to least of:
a) The amount of rent paid during the year
b) A prescribed limit of Rs.5000 per month, or
c) 25% of the total income of the assessee.
To avail the Deduction provided by Section 80GG one must satisfy the following conditions:
1) The individual should not be an owner of any residential house property on the date of payment of rent for which the deduction is claimed.
2) The individual should be residing in any residential accommodation taken under a lease, sub lease or any other agreement.
3) The individual has incurred the rent expenses for self occupation and has not transferred the possession of the accommodation to any other person.
4) The individual should not have received House Rent Allowance (HRA) from his employer.
5) The claim of deduction u/s 80GG cannot exceed 25% of the total income of the assessee for the assessment year which is the financial year.
Calculation of deduction
The amount which can be claimed as deduction u/s 80GG is the least of the following:
1) Actual rent paid by the assessee during the year
2) Rs. 5,000 per month
3) 25% of the total income of the assessee before claiming any deduction.
One should note that this section does not provide for an individual who has owned any residential house property during the year, and receives House Rent Allowance. In such a case no deduction is available u/s 80GG as the individual has received House Rent Allowance from his employer.
Document Required
The following documents should be kept handy at the time of filing of ITR to claim deduction:
1) Details of house Property including Address, Agreement Details like copy of rent agreement, Copy of rent receipt
2) Summary of rent paid during the subject assessment year
3) PAN details of the Landlord
4) Copy of salary slip mentioning HRA received or not during the assessment year
Limitations
There are certain limitations associated with this deduction. Firstly, the deduction is available only to individuals and not to HUFs. Secondly, the deduction is only available if the individual is not receiving any House Rent Allowance from his employer. Thirdly, the deduction is limited to 25% of the total income of the assessee before claiming any deduction. Lastly, the deduction is not available if the individual has owned any residential house property during the year.
Conclusion
Section 80GG provides a much-needed relief to individuals who are not able to avail of the benefit of HRA due to certain contingencies and provides a deduction for rental outgo incurred by them. This helps in reducing the burden of tax liability and providing some benefit to sections of population who rent out accommodations. This section also enables the taxpayer to save on taxes as the annual rent payment entitle him to a tax deduction, up to a certain specified limit.
The scope and calculation of deduction has been explained above in detail. It is important to note that the deduction is allowed only up to a certain specified limit and the person claiming the deduction should also have the documents related to the house property.
(Author can be reached at email address [email protected] or on Mobile No. 9990365673)
Disclaimer: “Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter. CA Sharad Kumar Sharma has taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “
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