When you earn income, you are liable to pay tax on it. The Income Tax Act, 1961 governs the laws related to the payment of tax in India.
The act has multiple provisions that help you reduce your tax liability. One of the commonly known sections is 80C, which allows tax exemptions of up to INR 1.50 lakhs per year if you invest in eligible instruments.
However, there are other sections that are also beneficial in reducing your tax liability. One of these is section 80GG. Read on to know more about it.
What is Section 80GG?
It is a special provision under Chapter VI-A of the Income Tax Act, 1961. It was introduced as a relief for taxpayers who paid rent but did not receive house rent allowance (HRA). This section allows them to claim deduction on the rent paid even if they are not receiving HRA.
Income tax deductions under section 80GG
Tax Rule 2A governs the deductions under section 80GG of the Income Tax Act, 1961. The deduction is the lowest of the following:
- 25% of your total adjusted annual income
- INR 5,000 per month or INR 6 lakhs per year
- Annual rent minus 10% of your total adjusted income
Here is an example to understand the deduction. Assume your annual total adjusted income is INR 10 lakhs and the monthly rental is INR 23,000. Here is the calculation of the amounts based on the three aforementioned rules:
Rule Amount (INR) 25% of total adjusted annual income 2,50,000 Yearly rent paid 2,76,000 Annual rent – 10% of total adjusted income 1,76,000The 80GG deduction is the lowest, which is INR 1.76 lakhs per year.
Income tax exceptions/deductions under section 80GG
There are some exceptions when you cannot claim tax exemptions under this section, which are as follows:
- If you own a home in the location where you operate your business or are employed
- If you are claiming the benefits of an owned self-occupied property in another location; if you own a home in a place where you are not working, it is considered as rented out
However, if you live with your parents, you can still claim deductions under sec 80GG of the Income Tax Act, 1961. You have to make an agreement with them and pay the rent.
However, to be eligible for claiming the deduction, while filing the income tax returns (ITRs), your parents will have to show the rent as income.
Conditions required to be met to claim deduction under Section 80GG
To claim the benefits under this section, you must meet certain eligibility criteria, which are as follows:
- You are an individual or a Hindu Undivided Family (HUF) taxpayer
- You should either be employed or self-employed; the benefits are not available if you do not have an income even if you are paying rent
- You should not receive any HRA benefits from your employer
- If the annual rent is more than INR 1 lakh, you need to submit a copy of the Permanent Account Number (PAN) of the property owner
- If you have changed jobs during the financial year, you should not have claimed HRA benefits from your previous employer
- If you are a Non-Resident Indian (NRI), you must be paying rent for a property located in India
- You must submit Form 10BA, which is a declaration stating that you are not claiming any benefits of a self-occupied property in another location
Steps to file Form 10BA of income tax
This form is a declaration you have to file if you want to claim 80GG rent paid deductions. You must accurately give the following details.
- Complete address including postal code
- Your name and PAN
- Rent payment mode
- Tenure of stay as number of months
- Amount paid as rent
- Name and address of the property owner
- Declaration stating that you, your spouse, or minor children do not own another property in any other location
- If the annual rent amount is higher than INR 1 lakh, PAN details of the property owner
You may get this form from your company's Human Resource (HR) department or any tax office. You can also download it online.
If you are not receiving HRA from your employer but are paying rent for a furnished or unfurnished house, this section is beneficial in reducing your tax liability.
However, it is recommended you understand the eligibility criteria, maximum deduction limit, and other rules before claiming the benefits under this section.
Frequently Asked Questions (FAQs)
Can you claim both HRA and section 80GG rent benefits?
No, you can claim either HRA benefits or rent benefits under this section of the Income Tax Act, 1961.
Who is eligible for section 80GG benefits?
Individuals who do not receive HRA from their employers and live in a rented house are eligible. HUFs and NRIs are also eligible based on the guidelines applicable to this section.
What is the maximum amount that you can claim as section 80GG benefits?
The deduction is the lowest of the following:
- 25% of your annual adjusted total income
- INR 5,000 per month or INR 6 lakhs per year
- Annual rent minus 10% of your total adjusted income
What is adjusted total income while calculating the deduction amount?
Adjusted total income excludes long-term and short-term capital gains. However, short-term capital gains taxable at 10% under section 111A of the Income Tax Act, 1961 are excluded while determining the adjusted total income.
Additionally, it excludes any income under sections 115A to 115D, all deductions under sections 80C to 80U, and foreign earnings.
What details do you have to submit to claim tax benefits under section 80GG?
You must submit the following details to claim tax benefits under this section:
- Complete address including postal code
- Your name and PAN details
- Rent payment mode
- Tenure of stay as number of months
- Amount paid as rent
- Name and address of the property owner
- Declaration stating that you, your spouse, or minor children do not own another property in any other location
- If the annual rent amount is higher than INR 1 lakh, PAN details of the property owner
What is form 10BA?
It is a declaration that you must file if you want to claim deductions on the rent paid under section 80GG of the Income Tax Act, 1961.
What are the eligibility norms for claiming deductions under section 80GG?
- You should either be employed or self-employed
- You should not receive any HRA benefits from your employer
- You should not own any other property in any location as it is considered rented property
This is a companion discussion topic for the original entry at https://jupiter.money/resources/guide-to-section-80gg/