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Section 80GG of the Income Tax Act: Understanding the Potential Deductions for Rent
According to the Income Tax Act, taxpayers can claim several deductions while calculating their taxable income. One of these is the deduction for the rent paid by them. A salaried individual can claim a deduction for Home Rent Allowance (HRA) if HRA forms part of their salary. However, those not getting HRA from employers but making rental payments for furnished or unfurnished accommodation can claim a deduction under section 80GG towards the rent paid.
The deduction is also applicable to self-employed professionals. If you are a business owner, you can claim tax deductions under this section. Additionally, individuals residing on the property owned by their parents can also claim Section 80GG benefits, provided they sign a rental agreement and pay rent to their parents. In that case, the rent received by parents is treated as their taxable income when they file their returns.
Any deduction from a person’s income can lower the income tax liability in the long run, and Section 80GG is no exception. We have a comprehensive guide for taxpayers to help them make the most of the deduction and lower their tax burden.
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Eligibility for Deduction under Section 80GG of the Income Tax Act
Section 80GG enables a taxpayer to claim a deduction on the rent paid towards a furnished or unfurnished house used for residential accommodation. It means you can deduct this amount from your gross income of the year to calculate the net taxable income. You must fulfill these conditions to claim a deduction for rent under section 80GG:
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You have not received HRA from an employer as a part of your salary during the year
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You, your spouse, minor child, or HUF do not own a residential accommodation where you live, are employed, or carry on business or profession
You will have to file Form 10BA with details of the rent to claim the deduction. For rent exceeding Rs.1 lakh per annum, you will have to provide the owner’s PAN card to claim the deduction. Additionally, you should not have claimed the HRA during the financial year to be eligible for deduction under Section 80GG.
Exceptions under Section 80GG
You should also know about the situations when you cannot claim a deduction under Section 80GG. These exceptions include:
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You own a house where you are employed or run a business
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You are already claiming benefits for Self-Occupied Property, an owned house in another location or city, which you may have rented out
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You have claimed the HRA during the year, such as working with a different employer and receiving an HRA deduction from the previous employment
You can get the benefits of Section 80GG if living with your parents. All you have to do is enter into a rental agreement with them and pay at least Rs. 60,000 as rent. In this case, your parents will have to show the rental amount as their income in their tax declaration.
80GG Deduction Limit
Besides knowing your eligibility to claim a deduction under Section 80GG, you should also know the amount you can deduct. The lowest of the following is considered as the deduction limit:
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Rs.5000 per month or Rs. 60,000 annually
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25% of the total income before making a deduction under section 80GG (excluding income under Section 115A or 115D, short- and long-term capital gains under Section 111A, and deductions under 80C to 80U)
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Actual rent less 10% of income
Advantages of Section 80GG
Section 80GG provides a tax deduction for persons who do not get HRA from their employers yet pay rent for their accommodation. Individuals with low income or those just starting their careers can derive benefits from this section as it enables them to reduce tax liability and save more despite paying rent. Additionally, salaried and self-employed individuals can claim a rebate under this section of the Income Tax Act.
As a downside, the maximum deduction available under Section 80GG is limited to 25% of the total income or only Rs. 5,000 per month, whichever is less. The tax benefit may be relatively small if you have a high income or pay high rent. Also, the rent you pay should be more than 10% of the total income. Individuals paying a low rent or having a high income may actually not be eligible for this tax deduction. Moreover, you cannot receive tax rebates under other sections for the same rent if you claim a deduction under Section 80GG.
How to claim a deduction under Section 80GG?
The first thing you need to do to claim a deduction under Section 80GG is to check your eligibility. If you fulfill the criteria, you will have to file Form 10BA along with your income tax return to claim this deduction. You will have to provide the required details such as the basic information about yourself and your landlord, the rent amount, and the rental period. You will also have to attach the necessary documents to prevent hassles down the line.
How to Fill Form 10BA?
You can download the Form 10BA from the official website of the Income Tax Department. Alternatively, you can get it from the tax offices or the HR department of your organisation. Form 10BA is a declaration to be filed by a person looking for a deduction under section 80GG for rent on rental property. The declaration validates that you are not already claiming the benefit of a self-occupied property in any other location or the location where you are employed.
How to fill Form 10BA from the official website of the Income Tax Portal
Access the e-filing website using PAN(login ID ) and Password
Go To E-File—> Income Tax Forms—> File Income Tax Forms
Go to the 3rd category of the forms i.e., Persons not dependent on any Source of Income (source of income not relevant) & Select Form 10BA
You will have to fill in the following details in Form 10BA:
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Name, PAN, and full address of assessee
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Rental Details- Ret Payment Mode & address of rental premises
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Name and address of the landlord
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PAN of the landlord for rent exceeding Rs. 1 lakh per annum
Landlord Information
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A declaration that you own no other house property or there is none in the name of your spouse/minor child or by the HUF of which you are a member.
Documents for Claiming Deduction under Section 80GG
When it comes to filling in Form 10BA to claim a deduction under Section 80GG, you will need several documents as evidence. Here is a checklist you must keep at hand while filing a claim:
Rent Agreement:
Keep a copy of the rental agreement or lease contract with your landlord handy. While it is not mandatory to submit this document, it can serve as valuable supporting evidence if required by the authorities.
Rent Receipts:
You should maintain rent receipts for the amount paid as rent during the financial year. The receipts should contain key details such as the landlord’s name and address, the amount paid, and the period for which the rent was paid. It should also have a revenue stamp (if applicable). Rent receipts for each month for which the rent was paid must be provided.
PAN of the Landlord:
If the annual rental payments exceed Rs. 1,00,000, you will have to give your landlord's Permanent Account Number (PAN) as a part of the process. It is mandatory to furnish this document in such cases.
Declaration in Form 10BA:
You will also have to give a declaration in Form 10BA for the annual rent paid exceeding Rs. 1,00,000.
Other Supporting Documents:
While additional documents may not be mandatory, it is advisable to keep supporting documents, such as canceled checks or bank statements to demonstrate that the rent payments were made to the landlord.
Deductions under Section 80GG for Property Owners
Property owners can also claim deductions under Section 80GG, provided they fulfill two major criteria. These include:
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They should be paying rent on a home where they are residing
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The property they own should not be in the same town or region as their city of employment.
Section 80GG will not be applicable to the yearly income taxes of landlords if they choose to live in a rental flat while owning property in the same city.
Section 80GG is a beneficial provision for people who do not receive HRA benefits because it can reduce their taxable income through a legitimate deduction. Lower taxable income means a reduction in tax liability down the line, which is a winning advantage for any taxpayer.
However, it is essential to meet the eligibility criteria and follow the guidelines to apply for a deduction to receive the necessary tax rebate under this section. This comprehensive guide offers all the information one needs to ensure the best outcomes in terms of deductions. Individuals can consult an expert finance professional to seek guidance and claim deductions and increase savings.
Frequently Asked Questions
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Is Section 80GG of the Income Tax Act applicable to salaried individuals?
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Yes, Section 80GG of the Income Tax Act applies to salaried persons paying rent for their accommodation but does not receive HRA from their employer. While they can claim a deduction under Section 80GG, they should fufill certain conditions such as not owning a residential property at the location of employment or business. Besides salaried employees, self-employed professionals can claim this deduction.
Q
What is the limit for Section 80GG?
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The maximum tax rebate you can claim under Section 80GG is Rs. 5,000 per month or 25% of your total income, whichever is less. Additionally, the rent paid should be in excess of 10% of your total income.
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Can I claim deductions under Section 80GG and HRA simultaneously?
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No, you cannot claim a deduction for rent under Section 80GG and HRA for the same period. It is not allowed by the Income Tax Act.
Q
What is the difference in the tax treatment of deduction under Section 88GG and HRA?
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The treatment of deduction under Section 80GG and HRA are different. The deduction under Section 80GG is not a part of the salary. It is a separate deduction that lowers your taxable income and reduces your overall tax liability. Conversely, HRA is an element of the salary and is taxable only if it exceeds the exempt limit.
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What is Form 10BA?
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Form 10BA is a declaration to be filed by a person seeking a deduction for rent paid on rental property under section 88GG of the Income Tax Act. You need to give details regarding your landlord and rent specifics in the form. Additionally, you have to provide supporting documents to validate these facts.
Q
Can I claim a deduction under 80GG while living with my parents?
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Yes, you can a claim deduction under 80GG while living with your parents, provided you pay rent to them. At the same time, you should have a proper rental agreement with them. Also, they must include the rental payment in their income while filing tax returns.
Q
I own a home in City A but I live in a leased residence in City B. Can I claim a deduction for rent under Section 80GG?
A
Yes, you can claim a deduction for rent paid under Section 80GG since you do own and rent homes in different locations. However, you cannot do it if the owned and rental homes are in the same city.
Q
Can I claim a deduction under Section 80GG when the property is in the name of my father?
A
Yes, you can claim a deduction for rent under Section 80GG benefit when the property is registered in your father’s name, provided you are paying rent to him. You will have to follow the regular process by submitting Form 10BA to claim the benefit.
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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