Section 80GG is one of lesser known sections which can be used by taxpayers to lessen their tax burden by claiming tax exemption for rent paid (in case HRA is not part of salary). This section can be used by be either salaried/pensioner or self-employed tax payers.
Conditions for Claiming Tax benefit u/s 80GG for Rent Paid
You can claim tax deduction on rent paid u/s 80GG at the time of filing tax return only if following conditions are satisfied:
- The deduction is available only for individuals & HUFs
- For salaried person to be eligible for tax benefit u/s 80GG, he should not receive HRA from his employer.
- Pensioners or Self employed do not have any HRA and so they can take advantage of 80GG
- No one in the family including spouse, minor children, self or HUF he is member of should own a house in the city you are employed or carrying your business.
- If you own a house in different city, you cannot show it as self-occupied. You have to consider it as deemed to let out – i.e. – you have to show rental income whether or not it’s actually put on rent.
Additionally, you need to fill form no 10BA to claim tax benefit u/s 80GG. This form is NOT to be submitted anywhere but kept with you for records to show to I-T department in case of scrutiny.
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Deduction allowed u/s 80GG:
The House Rent deduction is minimum of the below 3 numbers:
- Rs. 5,000 per month [increased from Rs 2,000 to Rs 5,000 in Budget 2016]
- 25% of annual income
- (Rent Paid – 10% of Annual Income)
Here Annual income refers to
- Gross Total Income
- Long Term Capital Gain,
- Short Term Capital Gain of 10% category,
- Deductions under sections 80C to 80U except section 80GG and income of foreign company
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Illustrative Calculation u/s 80GG
Assume that Amit has annual income of Rs 5 Lakhs and he pays rent of Rs 10,000 per month. Here is his tax benefit for rent paid.
- Rs. 5,000 per month – Rs 60,000
- 25% of annual income – Rs 1,25,000
- (Rent Paid – 10% of Annual Income) – Rs 70,000 (1,20,000 – 50,000)
The tax deduction would be minimum of above 3 numbers = Rs 60,000
80GG in Income Tax Return Form
Tax exemption under section 80GG is part of Chapter VI A and has to be filled as you do for Section 80C in the ITR Forms.
Can HRA & 80GG Tax benefit be claimed Together?
In case you were salaried receiving HRA for some part of the financial year but paid rent for the entire year, you can claim benefit under both HRA & Section 80GG. For the period you received HRA, you should claim tax benefit on that through your employer. For rest of months you would get tax benefit u/s 80GG.