Section 80GG of the Income Tax Act,1961 explain about the deduction in respect of rent paid, as under:

Section 80GG:

In computing the total income of an assessee, not being an assessee having any income falling within Section 10(13A) of the Act, there shall be deducted any expenditure incurred by him in excess of ten percent of his total income towards payment of rent (by whatever called) in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence, to the extent to which such excess expenditure does not exceed five thousand rupees per month or twenty five percent of his total income for the year, whichever is less, and subject to 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:    

To take the benefit of above section, following conditions are to be fulfilled.

01. Assessee must be an individual.

02. That individual can be Self Employed person, serving as an employee and receiving salary.

03. Being a salaried person, he should not be entitled to receive any House Rent allowance (HRA) or Rent Free accommodation

04. He is paying rent for his residential accommodation, for Financial Year.

05. Residential accommodation may be furnished or unfurnished.

06. As per definition of Relative u/s 2(41) of the Act, no relative of that individual should own any Residential Property or accommodation at that place where an individual resides. Relative includes:

  • Father / Mother
  • Brothers / Sisters
  • Son / Daughter
  • Grand Son / Grand Daughter
  • Husband / Wife
  • Sister’s Husband / Brother’s wife
  • Wife’s Brother / Wife’s Sister
  • Husband’ Brother / Husband’s Sister
  • Mother’s Brother / Mother’s Sister
  • Mother’s Sister’s Husband / Mother’s Brother’s Wife
  • Father’s Brother / Father’s Brother’s Wife
  • Father’s Sister’s Husband / Brother’s Sister
  • Grad Father / Grand Mother
  • Daughter’s Husband / Son’s Wife
  • Spouse’s Father / Spouse’s Mother
  • Spouse’s Grand Father / Spouse’ Grand Mother
  • Mother’s Brother’s Wife / Husband’s Brother’s Wife

07. The rent paid is in excess of 10% of his total income before allowing any deductions under this section;

08. Rent paid is in respect of accommodation occupying for the purposes of his own residence subject to the conditions that the assessee files declaration in Form No 10BA (vide Rule 11B);

09. The deduction is to be claimed only in the cases where any residential accommodation is not owned by the assessee or by his spouse or minor child or by Hindu Undivided Family of which he is a member.

The amount of deduction shall be minimum of the following amount.

  • Rent paid – excess of 10% of adjusted total income,
  • 25% of Adjusted total income,
  • 5,000 per month.

Illustration:

Mr. Shailesh Shah aged about 50 years, pays rent of Rs. 15,000 per month. His gross total income for the assessment year 2022-23 is Rs. 9,00,000 (Rs. 75,000 per month). How much deduction available to Mr. Shailesh u/s 80GG?

Answer:

Gross Total income

Deduction u/s 80GG:

Rs. 9,00,000
Rent paid Rs. 15,000 X 12 Rs. 1,80,000
10% of Rs.9,00,000 Rs. 90,000
Rent paid in excess Rs. 90,000
25% of total Income Rs.9,00,000 Rs. 2,25,000
Ceiling Amount Rs. 5,000 X 12 Rs. 60,000
The least of the above is Rs. 60,000 is allowable as
deduction u/s 80GG Rs. 60,000
Total Taxable Income Rs. 8,40,000

Hence, deduction u/s 80GG available to Mr. Shailesh Shah shall be Rs. 60,000, as it is least of the above three amount.

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