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Senior Advisor - Direct & International Tax
Section 80GG is covered under Chapter VI-A of the Income Tax Act, 1961 and is instrumental in offering deduction in tax to individuals who do not receive any House Rent Allowance (HRA) but are paying monthly rent for the accommodation. Thus, an individual can claim a deduction for rent paid even if he or she does not get house rent allowance. An individual, to claim deduction under this section, should be self-employed or a salaried one. 80GG allows the individuals to claim a deduction in respect of house rent paid. Such house rent paid shall be for his or her own stay. This provision acknowledges the financial burden of such individuals and provides a means to ease their tax liabilities.
In computing the total income of an assessee, not being an assessee having any income falling within clause (13A) of section 10, there shall be deducted any expenditure incurred by him in excess of ten per cent of his total income towards payment of rent (by whatever name called) in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence, to the extent to which such excess expenditure does not exceed [five] thousand rupees per month or twenty-five per cent of his total income for the year, whichever is less, and subject to such other conditions or limitations as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations :
Provided that nothing in this section shall apply to an assessee in any case where any residential accommodation is –
(i) | Owned by the assessee or by his spouse or minor child or, where such assessee is a member of a Hindu undivided family, by such family at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profession; or |
(ii) | Owned by the assessee at any other place, being accommodation in the occupation of the assessee, the value of which is to be determined [under clause (a) of sub-section (2) or, as the case may be, clause (a) of sub-section (4) of section 23]. |
Explanation.—In this section, the expressions “ten per cent of his total income” and “twenty-five per cent of his total income” shall mean ten per cent or twenty-five per cent, as the case may be, of the assessee’s total income before allowing deduction for any expenditure under this section.]
To avail of the benefits under Section 80GG, individuals must meet certain eligibility criteria:
The deduction under Section 80GG is calculated as the lower of the following three amounts:
Mr. A, a self-employed individual, pays Rs. 15,000 per month as rent. His total annual income is Rs. 6,00,000. Calculate the deduction under section 80GG in the hands of Mr. A
Calculation of Deduction Under Section 80GG
| Rent paid minus 10% of total income | Annual Rent Rs. 1,80,000/- (15,000*12) | A |
| 10% of Total Income Rs. 60,000 | ||
| Rs. 1,20,000/- | ||
| Rs. 5,000 per month | Rs. 60,000/- (5,000*12) | B |
| 25% of total income | Rs. 1,50,000/- (25% of 6,00,000) | C |
Deduction under section 80GG would be lower of A, B or C above, i.e., Rs. 60,000/-
Section 80GG is a crucial provision for individuals facing the challenge of not receiving HRA but still incurring rental expenses. By providing this deduction, the Income Tax Act recognizes the financial burden of such individuals and seeks to alleviate their tax liabilities. Taxpayers should ensure compliance with the eligibility criteria and maintain proper documentation to avail themselves of the benefits under Section 80GG effectively.
