What is Section 80GG as per Income Tax Act?

80GG is a section in the Income Tax Act of India, under which a person, either individual or HUF can claim a deduction on the rent that is paid towards a furnished or unfurnished house. The house must be in use for their residential accommodation.

By deductions, here we mean the amount you can deduct from your gross income of the year to derive at the net taxable income on which the income tax would be charged.


How to claim deduction under Section 80GG?

There are certain conditions which you need to meet to be eligible for the deductions under Section 80GG. Here are those criteria –

  • One can claim deduction under this section if he or she is self-employed or salaried.
  • Companies cannot claim deduction under this section for their rental expenses.
  • You being an individual or a Hindu Undivided Family (HUF) can only be entitled to receive this deduction.
  • If you are salaried, you must not receiving any HRA benefits and you are not even entitled to receive so, to avail the benefit of section 80GG.
  • In case the amount of rent exceeds Rs. 1 lakh, then you need to show PAN details of the Landlord (owner) of the house to prove that you are living there as a tenant on rent.
  • To prove that you are not claiming the deduction on a house or a residential property that is occupied by you in the location or any other location of your employment.
  • You can claim deduction under this section on any kind of residential property which is unfurnished, furnished or even semi furnished where you stay as a tenant.
  • If the taxpayer gets any kind of similar deduction in that assessment year, then he or she or the HUF cannot get deduction under this 80GG section.

Besides these assets, any other property that you own would be called a capital asset like land, building, shares, patents, trademarks, jewellery, etc.


What will be the quantum of deduction under section 80GG?

The amount of deduction can be the least of any of the following three -

  • Rs. 5000 per month or annually Rs. 60000
  • 25% of the yearly salary of the individual or the HUF
  • Amount derived after deducting 10% of the total income from the amount of total rent paid in the financial year.

Examples

For understanding the amount of deduction that you can be entitled to in a better way, here is an example.

Suppose, your friend Samiksha is earning Rs. 5 lakh p.a. She lives in Mumbai in a rented apartment and pays a rent of Rs.15000 per month. So, her total rent per year is Rs. 180000. Now, as per the above-mentioned criteria, the three possibilities can be –

  • Rs. 60000 annually
  • 25% of 5 lakhs = 1.25 lakhs
  • 180000- (10% of 500000) = Rs.130000

So, the least of this three amount is Rs. 60000. So your friend can claim and get a deduction of Rs. 60000 per year on the total income for the rent she pays.


Who can claim Deductions under this section?

A person who lives in a rented residential house and she or he must be an individual or HUF not receiving any HRA from their employer can get the deduction.

Exceptions
There are certain cases where you cannot claim the deduction even if you meet the above-mentioned criteria –

  • You are the owner of a house in the city or the town where you are employed or doing your business (self-employment).
  • For them who are staying with their parents in the parental house, cannot get deduction under this section.

The Trick So, you are living with your parents or any other relative where you do not pay any rent but want to avail the deduction under 80GG. In that case, you need to pay the rent to your parents or relative at least on paper that is you need to have the receipts of rent payment of at least Rs. 60000 to avail the minimum deduction. However, the twist is your parents have to show the rent as their income from rent in their tax return.


What is the information required for claiming deduction under section 80GG?

To claim the deduction under section 8oGG, you need to file the necessary details.

  • Your name
  • The address of the residential premise where you have been living on rent. You have to provide the full address with the postal code as well
  • Your PAN details
  • The tenure for which you are living in the rented property
  • Amount of rent and mode (through cash, bank deposit etc.) of payment
  • The address and name of the owner of the house. (i.e. landlord).
  • As mentioned above as well, if the rent you pay exceeds Rs. 1 lakh in a year, along with your PAN details you have to provide the PAN details of your owner.
  • A declaration that you do not own any residential property on your name or your spouse name and even on the name of your minor child or as a member of HUF.

Summary

Under Section 80GG of the Indian Income Tax Act 1961, any individual or HUF (no Companies) can claim a deduction on the amount of rent they pay for their accommodation. To claim the deduction the person or the HUF must be self-employed or salaried. And, in the salaried job, individual or the HUF must not be entitled to receive any HRA (for that assessment year). The least of Rs. 60000 per year or 25% of the total income in a year or the amount calculated by deducting 10% of the total income from the total rent paid in a year can be claimed as the deduction. The assessee must not own any residential property on his or her name and not even on family members like a spouse or minor child’s name, otherwise, they cannot be entitled to receive any deduction under this section.


Frequently Asked Questions (FAQs)

What is Adjusted Total Income?

Adjusted Total income mentioned above can be described as the income of the assessee in a year which does not have any long or short term capital gains in it (u/s 111A) and any other incomes which fall under section 115A or 115D. This income is after deducting any deduction from 80C to 80U and obviously before deducting the 80GG deduction.


What is HRA?

HRA or house rent allowance is a benefit that many salaried people get from their employers (especially the ones who are in government transferable job). This amount is for availing accommodation on rent in a city where you are employed and you do not have your own house. You can claim exemption of full or half HRA amount under section 10 of the Income Tax Act.


What is Financial Year?

It is a period of 12 months which is taken into account for the calculation of income and expenses in accounting and for taxation purpose. Here, in India, the financial year starts from 1st of April and ends on 31st of March next year.


What is Assessment Year?

The year following the financial year, in which you have to pay the tax or the tax would be computed is known as Assessment year. For example, if the financial year is from 1st April 2018 to 31st March 2019. The assessment year would be 1st April 2019 to 31st March 2020.


Who is an Assessee?

The person who files his or her income tax return for assessment in the assessment year is known as an assessee. Here the person who will be claiming the deduction under section 80GG, have to file the income tax return for tax assessment purpose and he or she will be regarded as the assessee.


What is total rent referred above?

The amount you have paid for the residential property you are living, in the relevant financial year is your total rent paid. For example, your rent is Rs. 10000 per month, so the total rent for the financial year 2018-19 would be Rs. 120000.

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