Section 80GG deduction under Income tax act

What Exactly is Section 80GG?

Section 80GG is a special provision under Chapter VI-A of the Income Tax Act, 1961, that allows individuals to claim a deduction for rent paid for residential accommodation, whether furnished or unfurnished. It acts as a crucial tax relief mechanism, particularly for self-employed individuals, freelancers, or even salaried employees whose salary structure does not include an HRA component.

To avail this deduction, a taxpayer must file Form 10BA, a mandatory declaration confirming that they do not receive HRA and meet all other specified conditions. This form ensures compliance and provides a verifiable record of the rent paid.

Who is Eligible to Claim this Deduction?

To benefit from Section 80GG, a taxpayer must satisfy a precise set of criteria:

• Taxpayer Type: The individual must either be self-employed or a salaried employee who does not receive House Rent Allowance (HRA) as part of their salary. This section is meant for people who pay rent but don’t receive HRA, so if you do get HRA, you cannot claim this deduction.
• Individual or HUF: This deduction is exclusively available to individuals and Hindu Undivided Families (HUFs). Companies, firms, or other legal entities cannot claim tax benefits under this section.
• Residing in Rented Accommodation: The taxpayer must actually be living in a rented residential accommodation. This means the deduction applies to the rent paid for the house, apartment, or flat they occupy as a tenant.
• No Ownership of Residential Property: This is a critical condition. The taxpayer, their spouse, their minor child, or the HUF of which they are a member should not own any residential accommodation in the city or town where they reside, perform employment duties, or carry on their business or profession. If they own a property in a different city but rent accommodation in their work city, they can still claim the deduction under Section 80GG, provided they do not claim benefits for the owned property as a self-occupied property.
• Mandatory Form 10BA Submission: As mentioned, filing a declaration in Form 10BA is compulsory. This form requires details of the landlord, the rent paid, and a declaration that the taxpayer meets the eligibility conditions.

How to Claim Section 80GG Deduction: A Step-by-Step Guide

1. Confirm Your EligibilityFirst things first, check if you qualify. The primary condition is that you must not be receiving HRA from your employer. Additionally, neither you, your spouse, nor your minor child should own any residential property in the city where you currently live or work. This deduction is specifically for those who genuinely pay rent for their accommodation without having an owned home in that same location.
2. Prepare Your Rent DocumentationHaving your papers in order is crucial. Make sure you keep all your rent receipts for the financial year and a copy of your rental agreement. If your total annual rent exceeds ₹1 lakh, it’s mandatory to also provide your landlord’s Permanent Account Number (PAN). These documents are vital for proving your rent payments if the tax department requests verification.
3. File Form 10BA OnlineThis is a mandatory step before you file your income tax return. You need to log in to the official Income Tax e-filing portal and submit Form 10BA online. This form acts as a formal declaration to the tax authorities, confirming that you’ve paid rent and that you meet all the conditions for claiming the 80GG deduction, including the non-ownership of property.
4. 4. Calculate Your Eligible Deduction AmountTo figure out how much you can actually claim, you’ll need to determine the lowest of these three amounts:
   • ₹5,000 per month (which totals ₹60,000 for the year)
   • 25% of your “adjusted total income” (this is your gross total income minus certain deductions and long-term/short-term capital gains)
   • The actual rent you paid minus 10% of your “adjusted total income”

   The smallest figure among these three is the maximum deduction you can claim under Section 80GG.

5. 5. Claim the Deduction in Your Tax ReturnOnce you’ve filed Form 10BA and calculated your eligible amount, the final step is to enter this deduction when you file your Income Tax Return (ITR). Look for the Section 80GG option under the “Deductions” section (Chapter VI-A) of your ITR form. Ensure you file your return by the due date to smoothly avail of this tax benefit.

How is the Deduction Amount Calculated?

The amount of deduction allowed under Section 80GG is the least of the following three figures:

• ₹5,000 per month: This translates to a maximum of ₹60,000 annually.
• 25% of total income: This refers to the “adjusted total income.” The total income for this calculation excludes long-term capital gains, short-term capital gains taxable under section 111A, income referred to in sections 115A or 115D, and all deductions available under Chapter VI-A (i.e., Sections 80C to 80U, except for the 80GG deduction itself).
• Actual rent paid minus 10% of total income: This means you calculate 10% of your adjusted total income and subtract it from the total actual rent paid during the financial year.

Essential Points to Remember

Claiming this deduction requires diligence and conformity to certain procedures:

• Mandatory Filing of Form 10BA: This cannot be stressed enough. Before claiming the deduction in your Income Tax Return (ITR), you must submit Form 10BA online. This form serves as a declaration that you have paid rent, do not own any property at your place of residence or work, and meet all other conditions.
• Mode of Rent Payment: While there’s no strict legal mandate for rent payments to be only through banking channels, it is highly advisable. Paying rent via cheque, bank transfer, or digital modes creates a clear audit trail and provides irrefutable proof of payment. If you pay rent in cash, especially significant amounts (e.g., above ₹5,000 per month), the Income Tax Department may ask for further proof or study the claim more closely.
• Maintaining Proper Documentation: Always keep careful records of your rent payments. This includes:
  • Rent receipts: These should ideally be obtained monthly and contain details like the landlord’s name, the amount received, the period for which rent is paid, and a revenue stamp (if applicable).
  • Rental agreement: A formal rent agreement or lease deed is crucial as it legally establishes the tenancy and the rent terms.
  • PAN of Landlord: If your annual rent exceeds ₹1,00,000, it is mandatory to provide your landlord’s Permanent Account Number (PAN) in Form 10BA and your ITR. Without the landlord’s PAN, your claim for deduction may be denied.
  • Bank statements/transaction records: These serve as direct proof of rent payments.
• Ineligibility Due to Property Ownership: As highlighted in the eligibility criteria, if you, your spouse, your minor child, or the HUF you are a member of, own a residential property in the same city where you reside or work, you cannot claim the 80GG deduction. This applies even if that property is rented out to someone else. The intent of 80GG is to provide relief for those genuinely living in rented accommodation without the benefit of owning a suitable house in their place of activity.
• Exclusivity with HRA Exemption: You cannot claim both HRA exemption under Section 10(13A) and deduction under Section 80GG simultaneously. These are mutually exclusive. If your salary package includes HRA, you must opt for HRA exemption. Section 80GG is specifically designed for those who do not receive HRA.

Who Stands to Benefit Most from Section 80GG?

Section 80GG is a boon for several categories of taxpayers:

• Self-employed professionals or freelancers: These individuals typically do not have a salary structure that includes HRA, making 80GG their primary avenue for claiming rent deductions.
• Employees without HRA in salary: Many organizations, especially smaller ones or startups, might not provide HRA as a separate component, even if the employee is salaried. Such employees can leverage 80GG.
• Retired individuals living on pension: If a retired person receives a pension but lives in rented accommodation, they can utilize this section to reduce their taxable income.
• Gig economy workers: Individuals working in the expanding gig economy, such as delivery agents, online tutors, or consultants, often don’t have traditional employer-employee relationships with HRA benefits. Section 80GG provides them with a valuable tax-saving opportunity.

Common Mistakes to Avoid

To ensure a smooth claim process, avoid these frequent errors:

• Forgetting to File Form 10BA: This is perhaps the most common reason for deduction claims getting rejected. It’s a vital declaration.
• Attempting to Claim Both HRA and 80GG: As stated, these are exclusive. Choosing both will lead to the rejection of your 80GG claim.
• Incorrect Calculation of Deduction: Be careful with the “least of three” calculation. Misinterpreting the “total income” for the 25% and 10% clauses can lead to errors. Remember to exclude capital gains and other Chapter VI-A deductions.
• Lack of Sufficient Documentation: The Income Tax Department may ask for proof of rent payments and tenancy. Not having proper rent receipts, a rental agreement, or bank statements can risk your claim.
• Renting from Family Members without Formalities: While you can pay rent to your parents and claim 80GG, it must be a genuine landlord-tenant relationship. Ensure there’s a formal rental agreement and actual money transfers, preferably through banking channels. The parent receiving rent must also declare it as income in their ITR.

Smart Tax-Saving Tips Using Section 80GG

• Prioritize Documentation: Make it a habit to obtain rent receipts every month and keep them organized. If annual rent crosses ₹1 lakh, ensure you have your landlord’s PAN.
• Leverage for City Relocation: If you move to a new city for work or business and your employer doesn’t offer HRA, Section 80GG immediately becomes a significant tax-saving tool.
• Utilize Traceable Payment Methods: Always aim to pay rent through bank transfers, cheques, or digital payment platforms. This simplifies verification and audit trails.
• Retain Form 10BA Records: After filing Form 10BA, keep a copy for your records, especially for future assessment years or if any queries arise from the tax department.

Recent Developments and Outlook

The process of filing Form 10BA has been digitized, making it more convenient for taxpayers to submit it online through the Income Tax portal. While Aadhaar authentication might be required for verification purposes in some instances, the core mechanism remains the same.

One point of disagreement for many taxpayers is that the maximum deduction amount of ₹5,000 per month (₹60,000 annually) under Section 80GG has remained unchanged for several years, despite the continuous and often high increase in rental costs across Indian cities. There’s a persistent demand from taxpayers and experts for this limit to be revised upwards to provide more realistic relief.

Conclusion

Section 80GG, though less prominent than HRA, is an valuable provision within the Indian Income Tax Act, particularly for those who bear the burden of rental expenses without the benefit of HRA. While the maximum deduction might seem modest in comparison to the actual rent paid in many urban centers, it still offers a significant opportunity to reduce one’s taxable income and, consequently, their tax liability. The key to successfully claiming this deduction lies in understanding its eligibility conditions, accurately calculating the permissible amount, and diligently maintaining all necessary documentation, including the mandatory Form 10BA. For millions of urban dwellers for whom rent is a major expenditure, wisely utilizing Section 80GG can offer much-needed financial relief and contribute to effective tax planning.

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