Section 80GG Of Income Tax Act - A Tax Deduction for Rent Paid(2024-2025)

Imagine that you have just secured your first job and are very excited to face this new stage of your life. You relocate to a new city, sensing great about the independence that comes with living alone. But as you get into the routine, reality starts hitting you with monthly expenses—rent being one of the biggest. Things can even get murkier: your employer does not grant a House Rent Allowance, thereby putting the burden of rent on you with no type of tax relief. You could have initially thought there was no way to lighten the load—maybe even feeling a little envious of colleagues who enjoy tax benefits from HRA.

But do not worry; there is one unsung hero in the tax code who can help people like you. Section 80GG of the Income Tax Act is the provision that comes to the rescue when HRA is absent in your salary slip. It is something like a superhero, where Section 80GG will save the day by reducing your taxable income and putting more money in your pocket. Be it a fresh graduate at the threshold of his career or someone who has spent quite a number of years managing without HRA, understanding this section may bring relief like salt to a wound.

Through the following article, we will break down Section 80GG into something simple and easy to understand, even if taxes always seem confusing.
 

What Is Section 80GG?

Section 80GG of the Income Tax Act, 1961 provides a deduction under house rent allowance or HRA, which a person may not have received from their employer. For taking this deduction, the following eligibility should be met:

• Rental residence: The individual should inhabit a rented property.
• No HRA is received: The individual does not receive HRA from their employer in their monthly salary package.

This tax deduction applies equally to salaried employees, self-employed individuals, and business owners. The claim shall be effective for you, either being employed or self-employed, as long as you are eligible under these conditions.
 

Who Is Eligible For A Section 80GG Tax Deduction?

You must meet some requirements to qualify for claiming tax deductions under Section 80GG of the Income Tax Act, 1961. Here’s an analysis of who is eligible:

1. Eligible Individuals: If you fall under the category of individuals and Hindu Undivided Families(HUFs), you qualify to claim deductions under Section 80GG. However, business and commercial organisations cannot benefit from this.

2. Status of Employment: Salaried employees, as well as self-employed individuals can avail benefits of tax deductions under Section 80GG. Nevertheless, individuals with no income are ineligible irrespective of the rent paid by them.

3. Form Requirement: A completely filled Form 10BA is submitted to the government to claim such deductions. This form acts as proof that you do not have a self-occupied property anywhere and claim benefits on that.

4. House Rent Allowance (HRA): Employees who do not receive HRA from their employers are eligible to claim these benefits. However, receiving HRA even for a month invalidates you for an entire fiscal year.

5. Rent And PAN Card Requirements: If your years’ rent surpasses Rs. 1 lakh, then a PAN card belonging to the landlord of the property you are renting, is required.

6. Living With Parents: You still qualify to claim deductions under Section 80GG even if you stay in a property owned by you parents. All you need is to sign a formal rental agreement with them and voila the rent is taxable in their hands.

7. Non-Resident Indians (NRIs): An NRI, if they rent a property in India, is eligible to avail these tax benefits.

Are you confused about how the calculation is done? Worry not! We are here to help you!
 

How Are Deductions Under Section 80GG Calculated?

Deduction under Section 80GG is allowed as the least of the three amounts:

• Yearly Rs. 5000 or Rs. 60,000
• 25% of the Adjusted Total Income
• The amount obtained by deducting 10% of the Adjusted Total Income from total rent paid during the fiscal year.

The Adjusted Total Income shall be computed by:

• Start with overall income
• From this overall income, reduce any Long-Term Capital Gains(LTCG)
• Further, reduce Short-Term Capital Gains(STCG) under Section 111A
• All deductions under Section 80C to 80U should also be reduced, except under Section 80GG
• Incomes charged at special rates, such as under Sections 115A, 115AB, 115AC, or 115AD for NRIs and foreign organisations, should also be reduced

Still confused? Let’s look at an example!

Consider the following details:

• Monthly rent: Rs. 7,000
• Rent paid for the entire year: Rs. 84,000
• Adjusted Total Income: Rs. 3,00,000
• Yearly Rs. 5000 or Rs. 60,000

The maximum deduction you can get is Rs. 60,000.

Now, calculate 25% of the adjusted total income, i.e., 25% of 3,00,00, which will be Rs. 75,000. Next, we calculate the amount obtained by deducting 10% of the Adjusted Total Income from the total rent paid. This will be 10& of 3,00,000, which is equal to 30, 000. Further subtracting this from the rent paid throughout the year, i.e., Rs. 84,000, gives us Rs. 54,000. Thus, in this scenario, the qualified amount for deduction under Section 80GG is Rs. 54,000.
 

Which Property Owners Can Benefit From Tax Deductions

There are two major requirements that a property owner must adhere to in order to avail of the tax deductions allowed under Section 80GG. These are as follows:

• Payment of Rent for Present Residence: The property owner has to pay rent for the property in which he is currently residing. Section 80GG benefits are applicable only when a taxpayer is not staying in his own property and is instead living on rent.
• Property Location Requirement: The property or properties owned must not be located in the same city or area where the taxpayer's place of work is situated. If the property is owned by a taxpayer in the city where they work but chooses to stay in a rented property, Section 80GG is not applicable.

However, if the property owned lies in some other city or any other location, then it will be "let out," and the assessee can claim the benefits of Section 80GG for the rent paid in the current city of residence.
 

Pros And Cons Of Section 80GG

Let’s understand a few advantages and disadvantages of claiming deductions under Section 80GG.

Pros

There are a number of benefits granted under Section 80GG, especially to a person paying rent for their accommodation without receiving House Rent Allowance (HRA).

• Reduced Tax For Rent Payments: Section 80GG allows an individual to claim a tax deduction related to the housing rent paid when they do not receive HRA from their employers, as in the case of self-employed workers, low-income earners, or those in early career stages.
• Wider Eligibility: This section applies to both salaried and self-employed individuals. The applicability of this section places a larger portion of taxpayers, including those with minimal or no income, at an advantage for a reduction in tax liability.
• Lower Tax Liability: Under Section 80GG, when deductions are claimed by various individuals, there will be an effective reduction in tax liability. This ultimately leads to filing less tax and helps in better managing the finances of an individual.

Cons

Section 80GG does come with certain disadvantages:

• The amount for deduction is limited: The maximum deduction allowed under Sec 80GG is Rs. 2,000 per month or 25% of the total income, whichever is lower. This might translate to small savings in tax if someone has a higher income or pays high rent.
• Rent threshold requirement: For this deduction, the amount of rent paid must be more than 10% of the total income. It thus follows that in the case of people who pay low rents or have comparatively high incomes, this benefit cannot be availed of, which makes this section of less utility to such taxpayers.
• Exclusion in Case of Claim: Any person claiming a deduction under Section 80GG is not allowed to claim tax rebates available under other sections on the same rent paid. This exclusivity can narrow down the aggregate tax benefits accruable to all persons who pay rent.
   

How To Fill Form 10BA?

Form 10BA is an essential element while claiming tax advantages under Section 80GG. The following details are required while filling out the form:

• A complete address and postal code for the rented property are needed.
• The full name and the Permanent Account Number (PAN) of the individual claiming tax deductions must be provided.
• Configure how the rent is paid, such as through bank transfer, cash or any other mode.
• Mention the duration of your stay on the rented property in months.
• The name and address of the property owner should also be mentioned.
• You need to ascertain that neither you, your spouse, nor your minor child have any residential property under their name.
• If the total rent exceeds Rs. 1 lakh, then the landlord's PAN must be provided as well.

Source: https://img.indiafilings.com/learn/wp-content/uploads/2017/09/12004022/Form-10BA.png
 

How To Claim Deduction Under Section 80GG?

Here’s a stepwise guide to help you through the process of claiming a deduction under Section 80GG:

1. Personal Information: Provide your personal details like full name and your PAN details.

2. Lease information: Details about the address of the property with the postal code is needed. Also, the duration of your stay on the property and how the rent is paid must also be mentioned.

3. Details of the property owner: The name and address of the landlord need to be provided.

4. Declaration: On Form 10BA, declare that neither you nor your spouse nor your minor child nor the HUF of which you are a member owns any residential property.
 

Documents Required For The Claim Deduction Under Section 80GG

The below-mentioned documents are required:

• Rent Receipts: Rent receipts throughout the financial year should be collected. Each receipt should have the following details:
  • The full name and address of the property owner.
  • The rent payment.
  • The duration of rent payment.
  • If possible, a revenue stamp.
  • Make sure the rent slips for every month are available.
• Rent Agreement: A copy of the lease agreement would act as additional proof of your stay on the rented property. Although not compulsory, it is an added factor in case tax authorities need it.
•  Declaration In Form 10BA: Form 10BA is submitted to declare your claim deductions under Section 80GG. In case your rent exceeds Rs. 1 lakh, this form becomes a compulsion.
• PAN Of The Landlord: Under circumstances where your rent paid is more than Rs.  1 lakh, it is necessary to provide the PAN of your landlord.
• Other Supporting Documents: Though not necessary, additional documents like bank statements or cancelled cheques proving rent paid to your property owner can always come in handy.
   

Let’s Wrap It Up!

Section 80GG is a helpful tax provision for those paying rent but do not receive HRA from their employer. The deduction under this helps a lot in saving taxes and, hence, is a very practical tool for better management of finances. Though the benefits may sound modest, especially for those earning at higher rates, the relief it offers can be substantial for many taxpayers. It is essential to clearly understand the eligibility criteria and the methods of calculation so that you can provide a maximum deduction. Therefore, keeping all the documents and fulfilling all the requirements is very important so that you can claim this deduction without hassle and in the most effective way.

Want to know more about other sections of The Income Tax Act? Check out Section 206AB Of Income Tax Act and Section 115BAA Of Income Tax Act to learn more.
 

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