Taxation Times

January 2024

UJA | Taxation Times February - 2024
1Introduction
2Article : Understanding Section 80gg of Income Tax Act
3Case Laws 
4Circulars and Notifications: January 2024
5Tax Compliance February 2024
6Tax News from around the World
Picture of by Neha Raheja
by Neha Raheja

Senior Advisor - Direct & International Tax

On February 1, 2024, Hon. Finance Minister Mrs. Nirmala Sitharaman presented an interim union budget for fiscal year 2024-2025, which is the final budget of the Modi Government 2.0.

With the general elections around the corner, taxpayers had massive expectations from this budget. However, the Hon’ble Finance Minister announced in her Budget Speech that rates of direct and indirect taxes remain unchanged. This is a little surprising, particularly for individual taxpayers who were expecting some relief in personal income tax from the government.

When the newly elected government presents the full union budget for fiscal year 2024-2025 in and around July 2024, we can only hope to have relief in direct tax matters.

Coming to this month’s, Taxation Times, here’s what we have :

  • An article elaborating on the provisions of Section 80GG of the Income Tax Act, 1961 .
  • Case Laws from various courts & jurisdictions;
  • Tax Compliance Calendar: February 2024;
  • Circulars & Notifications, January 2024;
  • Tax news from around the world.

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in

Happy Reading!
Best Regards,
UJA Tax Team 

Understanding Section 80GG of Income Tax Act: A Blessing In Disguise For Individuals Not Having Hra

Introduction

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.

An extract of Section 80GG of the Income Tax Act, 1961 is as below:

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.]

Key Eligibility Criteria

To avail of the benefits under Section 80GG, individuals must meet certain eligibility criteria:

  • Non-receipt of HRA
    The individual should not receive any house rent allowance from their employer.
  • Self-employed individuals
    This deduction is not limited to salaried individuals. Even self-employed professionals or individuals engaged in business can claim it, provided they meet the eligibility criteria.
  • No property ownership
    The individual, their spouse, or a minor child should not own any residential accommodation in the location where they reside or carry out their employment.
  • The individual has filed a declaration in Form no 10BA
  • The individual should not own any residential accommodation in his or her name at any other place. (In simpler words, if Mr. A, in his income tax return, claims a deduction in respect of self-occupied property and pays rent for a place in which he ordinarily resides but not of his own, he shall not be able to claim deduction under 80GG section.)

Quantum of Deduction

The deduction under Section 80GG is calculated as the lower of the following three amounts:

  • Rent paid minus 10% of total income: The excess of rent paid over 10% of the total income is eligible for deduction Or
  • 5,000 per month: The maximum deduction allowed is Rs. 5,000 per month Or
  • 25% of total income: The deduction is capped at 25% of the total income.

Illustration for better understanding

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 incomeAnnual Rent Rs. 1,80,000/- (15,000*12)A
10% of Total Income Rs. 60,000 
Rs. 1,20,000/-                         
Rs. 5,000 per monthRs. 60,000/- (5,000*12)         B
25% of total incomeRs. 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/-

Conclusion

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.

Case Laws

Devi Dayal V/s Deputy Commissioner of Income-tax/Assistant Commissioner of Income-tax (IT) [2024] 158 taxmann.com 572 (Delhi - Trib.)
Reference: Section 9 read with section 5, of the Income-Tax Act, 1961 and article 15 of the India and Austria DTAA

Facts:
The assessee, an employee of an Indian company, was deputed to work on a project awarded by IAEA, Vienna, Austria, was stationed in Vienna, and was a non-resident.

The salary and the compensatory allowances were paid to the assessee in Vienna by the company in India, which were permissible to be utilized through a credit card that was valid only in Austria.

The assessing officer made additions on account of salary and allowances as the assessee did not furnish a tax residency certificate (TRC).

Held:
As per the provision of Section 9(1)(ii), the income earned under the heading “Salaries” is taxable in India “if it is earned” in India. The explanation issued for the removal of doubts declares that’salaries if they are earned’ meet services rendered in India.

In the instant case, the assessee neither had any rest period nor leave period, which was preceded and succeeded by services rendered outside India. Since the assessee has rendered services outside India, the salary cannot be taxable in India.

As per the definition, the salary paid or the advances received are to be included in the total income of the person when the salary becomes due.

From the concurrent reading of Section 5 dealing with scope of total income, Section 15 dealing with computation of total income under the head salary and chargeability thereof, and Section 9 dealing with income arising or accruing in India with reference to the salaries and the services rendered in India, we hold that no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India.

In Favour of: The Assessee

Aruna Surulkar V/s Income Tax Officer [2024] 158 taxmann.com 677 (Bombay)
Reference: Section 50C, read with section 148, of the Income-tax Act, 1961

Facts
The Assessing Officer issued a reopening notice on the ground that the assessee had violated the provisions of Section 50C.

In an instant petition, the assessee challenged the impugned reopening notice.

Held :

The assessing officer issued the assessee a notice under section 148A(b) seeking approval for reopening of assessment – Subsequently, the assessing officer passed order under section 148A(d) and issued the assessee a notice under section 148 seeking to reopen assessment – Mr. Basu, learned counsel for assessee submitted that there had been total non-application of mind while issuing order under section 148A(d), inasmuch as in said order it was mentioned that assessee was buyer of property and if only sanctioning authority had read order, he would not have granted sanction because section 50C did not apply to buyers – Whether Assessing Officer before issuing a notice must have satisfied himself that what he wrote made sense, and even Principal Commissioner, who granted sanction, should have also applied his mind and satisfied himself that order passed under section 148A(d) was being issued correctly by applying mind – Held, yes – Since there was nothing in notice to explain as to how, if transaction amount was less than stamp duty value, there could be escapement of any income, particularly in hands of a buyer, impugned notices and order were to be set aside

In Favour of: The Assessee.

Circulars and Notifications January 2024

Notifications

CBDT notifies ITR 6 AY 2024-25

CBDT notifies ITR-2 & ITR-3 for AY 2024-25; Individuals/HUFs subject to tax audit can verify ITR using EVC

Circulars

CBDT releases Explanatory Notes to the Provisions of the Finance Act, 2023

Press Release:

CBDT releases key Direct Tax Statistics through Time-Series data

Direct Tax collections at 80.61% of total Budget Estimates of Direct Taxes for F.Y. 2023-24 upto 10.01.2024

A record of over 8.18 crore Income Tax Returns (ITRs) filed for A.Y. 2023-2024 upto 31.12.2023; Y-o-Y increase of 9%

Tax Compliance: February 2024

07 February 2024

  • Due date for deposit of tax deducted/collected for the month of November 2023. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day that tax is paid without production of an Income-tax Challan.

14 February 2024

  • Due date for issue of TDS Certificate for tax deducted under section 194-IB/194-IA/194M/194S in the month of November, 2023

15 February 2024

  • Quarterly TDS certificate (in respect of tax deducted for payments other than salary) for the quarter ending December 31, 2023

Tax News from Around the World

The Philippines imposes 1% withholding tax on online merchants

Russia releases list of jurisdictions that do not engage in exchange of Country-by-Country reports

Norway publishes Supplementary Tax Act implementing Pillar 2 Global Minimum Tax

Netherlands publishes guide on Minimum Tax Act 2024 implementing Pillar 2 Global Minimum Tax

France affirms the applicability of Most Favored Nation (MFN) clause to dividend income with Kenya

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