Section 80GG of the Income Tax Act provides for home rental deductions, subject to certain
conditions. Some of them imply that you are an individual or a single Hindu family (HUF), self-
employed or salaried, etc.
One of the most important tax deductions available to us is the rental of a house. This is provided for in section 80GG of the Income Tax Law. This is especially helpful for employees who do not receive rental housing allowance (HRA) from their employer.
Section 80GG tax exemption is based on your salary, the city where you live (Tier I, Tier II, Tier III, etc.), the amount of your rent, and you’re HRA.
80GG deductions
In order for you to benefit from the home rental deductions under section 80GG, the following conditions must be met:
• You must be an individual or a member of the United Hindu Family (HUF). A business cannot claim deductions from housing rent.
• You must be self-employed or receive a salary.
• You should not be getting HRA benefits on your salary.
• You must complete and submit Form10BA to declare that you do not qualify for self-employment benefits at home in another location or in the same location where you work.
• If the rent paid exceeds Rs. 1 lakh per year, you need to present the PAN card of the owner of the house you live in for rent.
• You can claim rent even if the home you rent is partially or fully furnished.
In this section, you can request the lower of the applicable amounts below:
• Maximum limit of exemption Rs. 60,000 per year (Rs. 5,000 per month)
• 10% of rent paid.
• 25% of annual salary
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To understand this, let's look at an example. Rakesh earns Rs. 7 lakh annually and does not receive HRA. He pays rent of Rs. 18000 per month, i.e. 2.16k Let's now apply the 3 values above to determine the appropriate values. In accordance with paragraph 1, the cost of the benefit is RUB. 60,000. According to paragraph 2, the amount will be - 2,16,000 - 70,000 (10% of income) - rupees. 1,46,000. Under paragraph 3, the amount will be 100,000 rubles. 1.75K Since the lower of this amount is applied as a tax deduction under section 80GG, Ramesh will only be able to claim Rs. 60,000 as a tax deduction.
Exceptions under Section 80GG
• You cannot claim a rent deduction if you own a home where you work or run a business.
• You cannot claim a home rent deduction if you are applying for benefits for a home that you own elsewhere as self-employed property. If you live in one city and have a house in another city, it will be considered rented.
If you live with your parents, there is an interesting way to take advantage of Section 80GG. You can enter into a rental agreement with your parents and pay a certain amount - at least Rs. 60,000 as rent for your parents. However, your parents will need to report this amount as income on your tax return.
At present, given real estate rates, it is nearly impossible for the lowest value to be anything other than the Rs threshold. 60,000 allowed under section 80GG. And if you pay rent below Rs. 5000 per month, it is very likely that you live in a small town and your income is proportionately low and therefore completely exempt from income tax. In addition, most companies currently offer rental housing assistance as part of their wages, which automatically disqualifies you from claiming benefits under section 80GG.
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