Section 80GG – Tax Benefit on Rent Paid
Many people don’t receive any House Rent Allowance (HRA) but they still pay rent for their residence. In such situations, they assume that they are ineligible for tax benefits for the rent that they are paying. It is clear that they are unaware of Section 80GG of the Income tax act which allows them to claim deduction under Section 80GG for the rent paid. This article discusses about the conditions to calculate the Section 80GG Deduction.
Who can claim deduction under Section 80GG?
80GG deduction is available to salaried employees as well as non-salaried employees (including self – employed, freelancers, professionals, businessmen, commission agents etc) provided they have not received any House Rent Allowance or a Rent Free Accommodation.
Conditions to claim Section 80GG deduction-
The following conditions must be satisfied to claim deduction under Section 80GG:
- The Individual should pay rent for his/her accommodation.
- The individual or any of the following should not own any accommodation where the individual resides or is employed or carries on business or profession:
- a) Spouse of the individual.
- b) Minor child of the individual.
- c) HUF of which he/she is a member.
- If the individual owns a residence at any place other than the place of his/her residence or work, then such property should not be considered as self occupied for the purpose of determination of House Property Income.
Eligible amount of Deduction under Section 80GG
The eligible amount of deduction under the Section 80GG is lower of the following:
- Rs. 2000 X (multiplied) with number of months for which rent was paid.
- 25% of "Adjusted Total Income".
- Rent Paid Minus (–) 10% of "Adjusted Total Income".
How to calculate Adjusted Total Income under Section 80GG?
The Adjusted Total Income is calculated in the following way:-
Step 1: Compute the Gross Total Income.
Step 2: Calculate sum of the following amounts :
- a) Deductions under the Section 80C to 80U (excluding Section 80GG).
- b) Long Term Capital Gains.
- c) Short Term Capital Gains covered under Section 111A.
- d) Income under Section 115A, 115AB, 115AC or 115AD in case of Non-Resident.
Step 3: Deduct the added figure as computed in step 2 from the amount in step 1 to arrive at Adjusted Total Income.
Example
A is working in XYZ Pvt. Ltd. at Bangalore and furnishes the following details for the year 2013-14:
| Salary Details |
Amount |
| Basic Salary |
Rs. 30000/month |
| Dearness Allowance |
10% of Basic Salary |
| Interest on Bank Deposits |
Rs. 10000/- |
| Insurance Premium |
Rs. 25000/- |
| PPF Contribution |
Rs. 50000/- |
A has availed a flat on rent at Rs. 4500/month. Neither of A, A’s wife, A’s minor child, nor the HUF in which A is a member owns a residential house in Bangalore.
For A, deduction under Section 80GG will be lower of the following amounts:
| 1. Rs.2000/month * 12 months |
Rs. 24000/- |
| 2. 25% of Adjusted Total Income i.e. Rs.331000 |
Rs. 82750/- |
| 3. Rent paid (Rs.54000) – 10% of Adjusted Total Income(33100 i.e. 10% of 331000) |
Rs. 20900/- |
Thus, A can claim Rs. 20900/- as deduction under Section 80GG.
Calculation of Adjusted Total Income
| Particulars |
Amount |
| Basic Salary (Rs.30000 * 12) |
Rs. 360000/- |
| Add : Dearness Allowance (10% of Basic Salary) |
Rs. 36000/- |
| Add :Interest on Bank Deposits |
Rs. 10000/- |
| Gross Total Income |
Rs. 406000/- |
| Less : Deduction under Section 80C (as per Step 2) |
Rs. 75000/- |
| Adjusted Total Income (As per Step 3) |
Rs. 331000/- |
Other Points
As per the Income Tax rules, the Individual should file a declaration in Form 10BA in respect of expenditure incurred along with the return of income to claim deduction under Section 80GG.
Currently, since the Income Tax return is filed online and the Income Tax Department has not yet made any provision for e-filing the Form No. 10BA, it is suggested to submit Form No. 10BA at your Income Tax office where your jurisdiction lies.
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