Deduction 80GG – Deduction in respect of Rent Paid: Deduction under section 80GG provides a tax benefit for that assessee who does not receive of house rent allowance (HRA) but lives in a rented house. So, you can get a deduction under section 80GG from your income tax if you are not getting any house rent allowance from your employer and paying rent for your residence subject to some conditions. In this article, we will discuss bout all the latest provisions related to deduction 80GG as amended up to the finance act 2022.
Deduction 80GG Eligibility
There are certain criteria that a taxpayer must satisfy in order to claim a deduction under Section 80GG.
- Status of the tax payer: The benefit of deduction under this section is only available to individuals or HUF. Entities such as companies, organizations, etc., are not allowed to claim the benefit of deduction for rent paid.
- Employment of tax Payer: The taxpayer should either be employed in a business or should be a salaried person. If he receives House Rent Allowance [Sec 10 (13A)] from his employer, then the benefit under Section 80GG will not be available to him. Self-employed professionals are eligible for the deduction 80GG.
- Ownership of Property: The business place or office of the tax payer should not be owned by the tax payer himself, spouse, children or HUF. The place of profession/ business should be owned by some other party.
- Other Properties owned by the taxpayer: There may be a situation where the taxpayer may be owning a property and is currently living at a rented place. In this case, the owned property shouldn’t be shown as Self Occupied and will be deemed to be let out.
For tax benefits to be claimed, a duly filled out Form 10BA must be filed with the government in advance. An individual claiming the deduction declares that they do not claim any benefits from self-occupied properties.
Section 80GG deductions are also available to individuals who live with their parents. It is necessary for his/her parents to sign the rental agreement for this to happen. The amount is shown as rent, however, will be subject to tax when the parents file their taxes each year.
Amount of Deduction 80GG
The IT Department offers deduction under Section 80GG by selecting the LEAST amount from below. The calculation of 80GG is very easy as to enter the deduction from the least of the following.
- Rs. 5, 000 per month/ Rs.60,000 per month
- Total Rent Paid LESS 10% of total income 1
- 25% of total income.
Now, let’s take an example to calculate a deduction under section 80GG.
Suppose Mr Sumit has an annual income of INR 4, 00, 000 and has paid an annual rent of INR 1, 20, 000. So, what deduction will he have under Section 80GG?
Here, we will take note of these figures.
FIGURE 1- INR 5000 per month INR 60, 000
FIGURE 2- Total rent – 10% of Total Income= 1, 20, 000 – 40, 000 INR 80, 000
FIGURE 3 – 25% of 4, 00, 000, INR 1, 00, 000
The least of the above three figures will qualify as a deduction under Section 80GG. Therefore, in the present case, Mr. Sumit will have a deduction of INR 60, 000.
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Key Note: Deduction under section 80GG shall not be available to individuals/HUFs opting for alternative tax regime.
- Total income means the total income of the assessee arrived at after allowing all documents including deductions u/s 80C to 80U except section 80GG, and also excluding short-term capital gains taxable u/s 111A and long-term capital gains.