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written by Khatabook | October 26, 2021

All About Section 80GG Denoting Claim Deduction for Rent Paid

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Individuals who generally live and work in the cities from rented houses are allowed an allowance called the House Rent Allowance or HRA to reduce their taxes. This component is part of the salary structure and maybe the whole or partial amount available as a deduction under the HRA head. The HRA allowance is claimed on rental expenses of accommodation. When you live in your own house and not in rented accommodation, this component of your salary is fully taxable. 

What is section 80GG of Income Tax Act?

The Sec 80GG is also called the rent paid deduction in income tax. This was under the old tax regime before the Goods and Services Tax (GST) was implemented. Under the new tax regime, for filing Income Tax Returns or ITR from the AY 2021-2022 or FY 2020-2021, tax exemption on HRA is unavailable. 

Mrs Nirmala Sitharaman, our Finance Minister, announced the new tax regime for taxpayers in the Union Budget applicable to this financial year. The new income tax regime brings in many changes, and the biggest one is that many of the tax exemptions or deductions available under the old regime are unavailable in the newer one like HRA. 

But what happens under the old tax regime to taxpayers who earn a salary but have no HRA component in the salary? When no HRA is received, and a taxpayer makes a rental payment for unfurnished or furnished accommodation occupied by you on rent, you can claim a tax deduction under U/S Sec 80GG of Income Tax Act 1961.

Conditions to claim 80GG of income tax deduction:

  • The taxpayer must be salaried or self-employed.
  • You do not receive any HRA in your salary.
  • You, your minor child, spouse or Hindu Undivided Family (HUF) of which you are a part, do not own residential accommodation at the place you reside in/ work in/ are self-employed in/ have your business in.
  • If you own a self-occupied residential property, no deduction is allowed under section 80GG.
  • You must fill in Form 10BA income tax along with proof of rents paid.

Below is a sample of the Form 10BA to be filled to claim a tax deduction on rents paid under Section 80GG of Income Tax Act of 1961.

 

 

 

Also Read: All About Special Allowance - its Taxation & Calculation in India

Deduction allowed: 

In calculating the deductions allowed under the head of tax exemptions under Sec 80GG, the lowest of the three conditions is allowed as the tax-exempt limit for rent deduction income tax. 

  • A deduction of Rs 5,000/- per month.
  • An amount of 25% of the aggregate income (excluding short and long-term capital gains U/S 111A, 115D or 115A, the deductions under Sections 80C to 80U and the deductions made under Section 80GG.)
  • The actual rent minus 10% of the income calculated.

You can take the Sec 80GG of Income Tax Act benefits for rentals paid if you fulfil the conditions mentioned above. Salaried individuals paying rents for the houses they live in can claim HRA deductions and reduce their taxes partly or wholly as the case may be.

80GG of Income Tax Act deductions are unavailable to those who live in their self-owned property and when you opt to pay tax under the new regime.

How is HRA tax exemption calculated?

The deduction for HRA exemption is again the least of the amounts in the three below conditions.

  • Actual HRA component in your salary;
  • 50% of the amount of DA plus basic salary, if you live in a city declared a metro city or 40% if you live in cities that are non-metro cities:
  • The rent paid in actual rent minus 10% of the amount from DA plus basic salary.

Example for HRA and 80GG deduction:

Mr Sheru is employed in Mumbai and takes up a rental accommodation for Rs 20,000 in the FY of 2019-20. His basic salary is Rs 35,000, and his DA is Rs 3000/- and forms a part of his salary. During the year, his HRA is 2.4 lakh per annum. Now, in this case, Mr Sheru can claim the entire amount of Rs 2.4 lakh pa as a tax deduction. The entire rent paid can reduce his tax liability by Rs 2.4 lakh for the FY 2019-20. 

However, if his employer does not pay him any HRA as in the above case, then he can claim tax deduction under Income Tax 80GG Section. In such a case, he can calculate deduction for HRA exemption by considering the least of the three conditions set out or

  • 25% of total income that is adjusted;
  • Rs 5,000 per month;
  • Or, the actual rent paid less 10% of total Income adjusted

What is the adjusted total income for 80GG? 

The term total income adjusted for Section 80 GG of Income Tax Act rent deductions means the total income less the short and long-term capital gains U/S 111A, 115D or 115A. It also consists of the deductions under Sections 80C to 80U and the deductions made under Section 80GG. In such a case, he can only claim a tax deduction of Rs 5000/- per month or Rs 60,000/- per annum U/S 80GG.

How to live with your parents and claim HRA deduction?

Consider this example to understand the HRA tax deduction claim.

Sunita works in ABC Technologies in Bangalore and gets a salary with HRA but lives with her parents and not in rented accommodation. How should she claim the HRA as a tax deduction?

Sunita can claim the HRA as a tax deduction by paying rent to her parents. She will need to provide a rental agreement with her parents and show the rent transfer to her parents. This will help her parents and reduce her tax burden. 

But, what happens if Sunita does not receive HRA in her salary? Can she then claim tax deductions on rents paid to her parents U/S 80GG income tax rental deductions tax? Read the conditions set out under Sec 80GG of Income Tax Act 1961 for eligibility for tax deductions U/S 80GG. The conditions are:

  • The taxpayer must be salaried or self-employed.
  • You do not receive an HRA component in your salary.
  • You, your minor child, spouse or HUF of which you are a part, do not own residential accommodation at the place you reside in/ work in/ are self-employed in/ have your business in.
  • If you own a self-occupied residential property, no deduction is allowed under section 80GG.
  • You must fill in Form 10BA along with proof of rents paid.

In Sunita’s case, she has to prove that ‘she, her minor child, spouse or HUF of which she is a part, do not own residential accommodation at the place she resides or work or is self-employed or have her business in to be eligible for tax deductions. Note that your HRA claim must be supported by your parents as rental income in their ITRs filed. Of course, if their income is below the tax exemption limit, the issue of taxation in your parent’s hand is not present. The IT Department closely monitors all HRA claims. HRA can be claimed even when you own a house if you are claiming deductions U/S 80C on the principal amount borrowed and U/S 24 for the interest on housing loans if you have a genuine reason- for instance if the house is still under construction.

Also Read: Dearness Allowance (DA)– Understanding its Types and Calculation

Conclusion:

HRA is a component of the salary and has many facets that the common person does not understand. Under Sec 80 GG in income tax, when no HRA is paid with the salary, deductions can still be claimed for HRA under it. Therefore, we hope we have been able to clear your doubts regarding rent deduction income tax in this article.

Having trouble with filing ITR or Income Tax Returns? Use an app like Khatabook that can accurately help you compute all salary components and deductions. Try the app out today!

FAQs

Q: Can I claim HRA deductions as well as tax deductions U/S 80GG?

Ans:

No. Only individuals paying rent and not receiving any house rent allowance can claim tax deduction under the 80GG section of income tax. If you receive HRA in your salary, you cannot claim relief under Sec 80GG. This section also has a condition that the spouse, individual, minor children should not have their house property in the place of work or residing in for claiming this deduction. Note that this condition does not cover parents. Technically you could live at your parent’s property and still claim HRA deductions or tax deductions U/S 80GG if all other conditions are met.

Q: My Form-16 does not mention HRA. Can I claim tax deductions for HRA?

Ans:

When no HRA component is mentioned in your Form-16, it implies your employer does not provide you with any HRA. HRA tax exemption can only be claimed u/s 10 (13A) if a separate HRA component is provided by your employer and reflects in Form-16. You can claim rent paid deductions under section 80GG. When no HRA component is mentioned in your Form-16, it implies your employer does not provide you with any HRA. You need to check with your employer. If HRA is provided and missed out for any reason when filing your ITR, file a revised return before the end of the Assessment Year. 

Q: Where should I check for HRA in my salary?

Ans:

The taxable component of HRA is typically added to your salary and reflected under the head of Gross Salary in your payslips U/S 17(1)The tax-exempt component of HRA can be found under the Allowances head and is up to the limit exempt under Sec 10 of the Income Tax Act. The exempt HRA component of a salaried taxpayer is reflected in the statement of tax projection given by your employer at the start of an FY. Your employer will deduct the HRA from your salary. To file your ITR, you should view Part B deductions for HRA in your Form 16.

Q: Can the self-employed taxpayer claim HRA exemption?

Ans:

No. The self-employed taxpayer cannot claim HRA exemption as it is only for the salaried class having an HRA component in their salary bouquet. However, they can claim tax deductions for rent paid under section 80GG to the extent of fulfilling the conditions laid out under it.

Q: Why is 80GG in the Income Tax Act called the rent paid deduction in Income Tax?

Ans:

Only salaried taxpayers with an HRA component in their salaries can claim tax exemption on their rents for residential accommodation under the HRA tax exemptions in Income Tax. In the case of salaried employees in the private section, when no HRA is paid with the salary, the taxpayer can claim relief U/S 80GG of the Income Tax on the rents paid for residential accommodation. Hence, the name rents paid tax deduction is used for the Sec 80GG of the IT Act 1961.

Q: Can I claim tax deductions under Sec 80GG and tax deductions on interest and principal amounts repaid on a housing loan?

Ans:

Yes, your claim for tax deductions under section 80GG has no bearing on your tax deductions for the interest and principal amounts repaid on a housing loan provided you fulfil the eligibility conditions under these various sections. Hence, these tax deductions can all be claimed and are not exclusive of each other.

Q: Under what conditions am I eligible for deductions in tax under Section 80GG?

Ans:

The conditions are:

  • The taxpayer must be salaried or self-employed.
  • You do not receive any HRA in your salary.
  • You, your minor child, spouse or HUF of which you are a part, do not own residential accommodation at the place you reside in/ work in/ are self-employed in/ have your business in.
  • If you own a self-occupied residential property, no deduction is allowed under section 80GG.
  • You must fill in Form 10BA along with proof of rents paid.

Q: What is the Form 10BA used for?

Ans:

The Income Tax Form 10BA is a declaration filed by the taxpayer to claim tax deductions towards the house rents paid in a rented accommodation under section 80GG.

Q: Who can claim deduction under Sec 80GG?

Ans:

To claim deductions under section 80GG, you must be a self-employed individual or not receiving HRA in the salary.

Q: What does HRA mean?

Ans:

HRA is the acronym in income tax for House Rent Allowance. It is a part and salary component made towards the rents paid for housing accommodation. It is tax-deductible from the tax liability and is subject to maximum limits per the Income Tax Rules.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.