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December 1, 2020

Know all about 80GG Tax benefit on Rent Paid

by CA Shivam Jaiswal in Income Tax

Know all about 80GG Tax benefit on Rent Paid

House Rent Allowance, or commonly known as HRA, is an amount which is paid by employers to employees as a part of their salaries. This is basically done as it helps provide employees with tax benefits towards the payment for accommodations every year. The decision of how much HRA needs to be paid to the employee is made by the employer on the basis of a number of different criteria such as the salary and the city of residence.

Regulated by the provisions of Section 10(13A) of the IT Act, the house rent allowance serves to be quite beneficial to salaried employees in India. As per law, only salaried employees can claim HRA and self-employed individuals are exempt from doing the same. HRA, as an exemption is provided, only if the employee is living in rented accommodations. However, also in case the employee lives in his or her own house and does not pay any rent, he or she cannot claim HRA to save on taxes.

However, not everyone can avail the benefit of HRA. To provide individuals with benefit w.r.t rent, Section 80GG was introduced. Section 80GG is a special provision under Chapter VI-A of the Income Tax Act, 1961, which provides tax reprieve to those who do not avail house rent allowance.

What deduction is available under Section 80GG?

Section 80GG allows taxpayers to claim the deduction for rent paid for furnished or unfurnished accommodation occupied by the taxpayer for own residence. The claim under Section can only be made in cases where House Rent Allowance (HRA).

In computing the total income of an assessee, the deduction shall be lower of:

  • any expenditure incurred by him in excess of 10% of his adjusted total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence
  • Rs 5000 per month or
  • 25% of his total income for the year

Such deduction shall be 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.

What do you mean adjusted total income?

Adjusted total income refers to income not including long term and short-term capital gains. Here, only those short-term capital gains shall be excluded which are taxed at 10% that is u/s 111A.

Also, adjusted total income refers to income excluding income u/s 115A to 115D and deductions from 80C to 80U.

The adjusted total income = Gross Total Income – Long Term Capital Gain – Short Term Capital Gain subject to tax at 10% – deductions under sections 80C to 80U – income from the foreign company.

Section 80GG shall not be included in the above deductions from 80C to 80U.

When shall Section 80GG not be applicable?

Section 80GG shall not apply to an assessee in any case where any residential accommodation is:

  • owned by the assessee or by his spouse or minor child or, where such assessee is a member of a Hindu undivided family by such family, at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profes­sion; or
  • owned by the assessee at any other place, being accom­modation in the occupation of the assessee

Who is eligible to claim deduction under Section 80GG?

  • Only individuals and Hindu Undivided Family (HUF) are eligible to claim these tax deductions.
  • Businesses or other enterprises cannot avail the same tax discounts upon paying rent in a given financial year.
  • Individuals who are either salaried professionals or self-employed can take advantage of this provision.
  • If one has no income to speak of, he/she is disqualified from seeking Section 80GG income tax benefits, even if he/she pays the rent.
  • If a person’s salary includes HRA payment, he/she is ineligible to claim income tax rebates related to housing rent.
  • Even if one did not receive HRA for a major portion of the year, acquiring the same for just a month disqualifies his/her from claiming this yearly reprieve.

Can individuals residing with their parents claim deduction under Section 80GG?

  • Individuals residing with their parents in a property owned by their parents are also eligible to claim Section 80GG benefits.
  • However, they are required to sign a rental agreement with his/her parents.
  • Also, the amount shown as rent will be taxable when the parents file their yearly taxes.

Can NRI’s claim deduction under Section 80GG?

Non-resident Indians are also eligible to claim tax benefits under this provision. However, they must be paying rent for a property in India to apply for the same.

What details are required to be provided while claiming deduction under Section 80GG?

Those seeking to avail this tax rebate need to submit a duly filled Form 10BA to the government beforehand. This Form is a declaration that the individual filing it does not claim benefit from a self-occupied property in any location.

The details required to be submitted are:

  • Name of the assessee
  • PAN
  • Full address of the premises along with Postal Code
  • Tenure (in months)
  • Payment Mode
  • Amount Paid
  • Name of landlord
  • address of the landlord.
  • PAN of the landlord is mandatory if rental is more than Rs 1 lakh for the assessment year.
  • A Declaration confirming that no other house property is owned by the taxpayer himself or in the name of Spouse / minor child or by the HUF of which he is a member.

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