Introduction:

Section 80GG is a vital provision under Chapter VI-A of the Income Tax Act, 1961, designed to offer tax relief to individuals who do not receive any House Rent Allowance (HRA) but incur expenses on rental accommodation. Thus, an individual can claim a deduction for rent paid even if he or she does not get house rent allowance.

An individual, to claim deduction under this section, should be self-employed or a salaried one. 80GG allows the individuals to claim a deduction in respect of house rent paid. Such house rent paid shall be for his or her own stay.

This provision acknowledges the financial burden of such individuals and provides a means to ease their tax liabilities.

What is Section 80GG?

Section 80GG of the Income Tax Act, 1961, allows taxpayers to claim a deduction for the rent paid for the accommodation they reside in, provided they do not receive any HRA as part of their salary. This deduction is especially beneficial for individuals who may not be salaried employees or those working in sectors where HRA is not a component of their salary structure.

Key Eligibility Criteria:

To avail of the benefits under Section 80GG, individuals must meet certain eligibility criteria:

  • Non-receipt of HRA: The taxpayer should not receive any House Rent Allowance from their employer.
  • Self-employed individuals: This deduction is not limited to salaried individuals. Even self-employed professionals or individuals engaged in business can claim it, provided they meet the eligibility criteria.
  • No property ownership: The taxpayer, their spouse, or minor child should not own any residential accommodation in the location where they reside or carry out their employment.
  • The individual has filed a declaration in Form No 10BA
  • The assesse should not own any residential accommodation in his or her own occupation, at any other place, whose value is to be determined as per Sec 23(2)(a) or Sec 23(4)(a).

In simpler words, if Mr. A, in his income tax return, claims a deduction in respect of self-occupied property and pays rent for a place in which he ordinarily resides but not of his own, he shall not be able to claim deduction under 80GG section.

Renters without HRA

Quantum of Deduction:

The deduction under Section 80GG is calculated as the least of the following three amounts:

1. Rent paid minus 10% of total income: The excess of rent paid over 10% of the total income is eligible for deduction.

2. Rs. 5,000 per month: The maximum deduction allowed is Rs. 5,000 per month.

3. 25% of total income: The deduction is capped at 25% of the total income.

Illustrative Example:

Let’s consider an example to understand the calculation:

Mr. A, a self-employed individual, pays Rs. 15,000 per month as rent. His total annual income is Rs. 6,00,000.

Rent paid in a year = Rs. 15,000 * 12 = Rs. 1,80,000

10% of total income = 10% of Rs. 6,00,000 = Rs. 60,000

Maximum deduction (Rs. 5,000 * 12) = Rs. 60,000 25% of total income = 25% of Rs. 6,00,000 = Rs. 1,50,000

In this case, the least of the three amounts is Rs. 60,000. Therefore, Mr. A can claim a deduction of Rs. 60,000 under Section 80GG.

Conclusion:

Section 80GG is a crucial provision for individuals facing the challenge of not receiving HRA but still incurring rental expenses. By providing this deduction, the Income Tax Act recognizes the financial burden of such individuals and seeks to alleviate their tax liabilities. Taxpayers should ensure compliance with the eligibility criteria and maintain proper documentation to avail of the benefits under Section 80GG effectively

Author Bio

Qualification: CA in Job / Business
Company: Sharma Radha and Associates
Location: Thane, Maharashtra, India
Member Since: 06 Aug 2020 | Total Posts: 3
I am an Chartered Accountant by profession and have a keen interest in writing and consultancy. I write articles in various categories, from legal, business, personal finance, and investments to government schemes. I trying always to put words in a simplified manner and write easy-to-understand art View Full Profile

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