Section 80GG – Deduction for Rent

Section 80GG of Income Tax Act allows individuals a deduction for rent paid for furnished or unfurnished accommodation. The deduction is allowed to taxpayers who do not receive any HRA from their employer.

Deduction under section 80GG is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
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Deduction under section 80GG is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

What are the Conditions to Claim a Deduction for Rent Paid Under Section 80GG of Income Tax Act?

  • Only an independent individual can claim deduction u/s 80GG
  • An individual can be salaried or self-employed
  • In the case of a salaried person, he should not be receiving House Rent Allowance (HRA) from an employer
  • For claiming a deduction, Form 10BA needs to be submitted with the IT Department
  • Assessee or his spouse or minor child or HUF of which he is a member should not own any residential accommodation at the place where he is residing/performing office duties under-employment/carrying business or profession
  • The assessee should not own a self-occupied house property at any place

What is the Deduction Limit Under Section 80GG?

For FY 2018-19 (AY 2019-20), Deduction under this section will be the least of the following:

  • Total rent paid less 10% of total income
  • 25% of the annual salary
  • INR 5000 per month i.e INR 60,000 annually

What is the Exception to Section 80GG?

With respect to claiming deductions under section 80GG there are certain exceptions that one needs to take care of:

  • One cannot claim deduction under section 80GG if he/she is claiming a deduction on a house property that is owned by them in another location
  • One cannot claim deduction u/s 80GG on house rent if one owns a house in the location they are employed in or are doing business in

How is the Deduction Calculated Under Section 80GG?

Below mentioned are the medial authorities who are eligible to issue a disability certificate:

Mr Modi’s annual income is INR 8 lakh and he does not get HRA. He is paying a rent of INR 20,000 per month which is INR 2,40,000 annually. Let us now calculate his deductible income, whichever of the following is lower will be considered as the deductible amount:

Point 1: Total rent paid less 10% of the total income

Rent paid by Mr Modi in total is INR 2,40,000 less 10% of his annual income (INR 8,00,000) is INR 80,000 hence the deductible amount will come to INR 1,60,000 (2,40,000-80,000)

Point 2: 25% of the annual salary

Under this, the 25% of INR 8,00,000 would come to INR 2,00,000

Point 3: INR 5000 per month i.e INR 60,000 annually

Here Mr. Modi can avail INR 60,000 as a deduction amount.

As the condition to claim deduction under section 80GG is that the amount has to be the lowest from the above three, Mr Modi will be able to claim INR 60,000 as a deduction.

Who is eligible to claim deduction u/s 80GG?

Salaried Individuals are eligible if

  • Individuals paying house rent,
  • You don’t receive any House Rent Allowance from your employer,
  • You or your spouse or minor children or HUF in which you are a member do not own residential accommodation at the place of employment,
  • Not owning self-occupied residential accommodation at any other place.
  • You file Form 10BA before you claim the deduction.

Non-Salaried individuals are eligible if

  • Individuals paying house rent,
  • You or your spouse or minor children or HUF in which you are a member do not own residential accommodation at the place of employment,
  • Not owning self-occupied residential accommodation at any other place.
  • You file Form 10BA before you claim the deduction.

What is the threshold limit for claiming deduction u/s 80GG?

The lowest of the following is allowed as a deduction:

  1. Total rent paid less 10% of the total income
  2. 25% of the total income
  3. INR 5,000 per month i.e, INR 60,000 annually.

Let’s understand this with an example: Sharad is a salaried individual who does not receive HRA from his employer and lives in rented premises in Bangalore. Sharad pays INR 20,000 per month as rent for a year and his total income is INR 12,00,000. Neither Sharad nor his wife owns any residential property in Bangalore or at any other place.

In the above case, Sharad will be eligible to claim deduction under section 80GG even though he is a salaried individual. The deduction will be the lowest of the following:

  1. INR 1,20,000 (INR 20,000*12 months – 10% of INR 12,00,000)
  2. INR 3,00,000 (25% of INR 12,00,000)
  3. 60,000 (INR 5,000*12 months)    

Therefore, Sharad can claim a deduction of INR 60,000 for rent paid by him during the year provided he files Form 10BA first.   

ITR Form Applicable for Section 80GG

The taxpayer can claim deductions u/s 80GG while filing ITR by full-filling the above conditions. Individuals/HUFs can claim 80GG in any of the ITR forms, i.e, ITR 1ITR 2ITR 3, and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.

For FY 2019-20, due to COVID-19 the due date has been extended to 31st of December to file the tax audit report and 31st of January 2021 to file the ITR
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For FY 2019-20, due to COVID-19 the due date has been extended to 31st of December to file the tax audit report and 31st of January 2021 to file the ITR

Supporting Documents

Apart from the usual documents like Form 16 and PAN, you will need the following documents:

  • Rent agreement & Rent receipts
  • PAN Details of the landlord, if the rent amount exceeds INR 1,00,000.
  • Filing Form 10BA which ensures that you are not claiming the benefit of self-occupied property in the same or any other location

FAQs

Can I claim deduction u/s 80GG if I own a residential house?

You can claim deduction under section 80GG if you own a residential house property subject to following conditions:
– You or your spouse or children should not own a house property at your ordinary place of residence or office or employment; or
– You should not own a self-occupied house property anywhere in India.
So if you own a residential house property but it is given on rent then you can claim deduction under section 80GG for rent paid.

Can I claim a deduction u/s 80GG even if I’m Self employed?

Yes. You can claim a deduction for rent paid up to INR 60,000 even if you are self-employed.

Who can claim a deduction u/s 80GG?

Only an individual can claim deduction for rent paid under this section.

Can I claim 80GG along with my HRA?

No. Deduction under section 80GG is only available to individuals who do not get House Rent Allowance (HRA).

Can I claim 80GG in new tax regime?

No. Section 80GG is part of Chapter VI-A. The New Income Tax regime doesn’t allow any exemptions under chapter VI-A. Hence, you cannot claim section 80GG.

House Rent Allowance : Rules, Exemptions, and Calculations

What is House Rent Allowance?

The full form of House Rent Allowance. It is paid by an employer to employees as a part of their salaries. It is paid to meet the accommodation expenses. Salaried individuals who live in rental premises can claim exemption of House Rent Allowance.

From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on House Rent Allowance. House Rent Allowance Exemption is only available if an employee opts for the Old Tax Regime.
Tip
From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on House Rent Allowance. House Rent Allowance Exemption is only available if an employee opts for the Old Tax Regime.

Employees are required to submit the rent receipts to their employers to claim the tax benefit. The employers, in turn, will calculate exempt House Rent Allowance and deduct the same from the employee’s taxable salary. You can know exempt house rent allowance from your Form 16.

House Rent Allowance Exemption

The House Rent Allowance exemption rule is that the least of the following will be deducted from salary as an exemption under House Rent Allowance:

  • Actual House Rent Allowance from employer
  • Actual rent paid less than 10% of basic salary
  • 50% of basic salary if you live in a metro city or 40% of the basic salary if you live in a non-metro city.
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House Rent Allowance Calculation

The House Rent Allowance calculation formula has been explained below with the help of an example:

Example

Raj works in a company in Kanpur. He lives in a rented flat. He pays INR. 15,000/month as rent. Following is his salary structure.

Particulars Amount (In INR)
Basic Salary 5,00,000
House Rent Allowance 1,75,000
LTA 25,000
Other Allowances 12,500
Gross Salary 6,15,000
Actual Rent Paid 1,80,000

The least of the following will be the exempt House Rent Allowance:

  1. Actual House Rent Allowance: INR. 1,75,000
  2. Actual Rent Paid (-) 10% of Basic Salary: INR. 1,30,000 [1,80,000 – 10%(5,00,000)]
  3. 40% of the Basic Salary: INR. 2,00,000 [40%(5,00,000)]

INR. 1,30,000 will be exempt from House Rent Allowance. Hence taxable House Rent Allowance will be INR. 45,000 (1,75,000-1,30,000).

HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
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HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
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What if I don’t receive any House Rent Allowance?

Under Section 80GG, a deduction is allowed to an individual who pays rent without receiving any House Rent Allowance. So you can claim a deduction from total income if you:

  • Are paying House rent
  • Don’t receive any House Rent Allowance from your employer
  • Or your spouse or minor children do not own residential accommodation at the place of employment
  • Do not own self-occupied residential accommodation at any other place

If all these conditions are fulfilled, a deduction is available as the least of the:

  • Rent paid minus 10% of the total income
  • INR. 5000 per month i.e annually INR. 60,000
  • 25% of the total income

The important point to keep in mind is that deduction under Section 80GG is not allowed to an individual who receives House Rent Allowance from an employer. Hence, check your Salary Slip to see if you are receiving any House Rent Allowance. If you do, you can’t claim a deduction for rent paid under section 80GG.

Example

Sameer works for a pharma company in Ahmedabad and receives a salary of INR 7,20,000. He receives a House Rent Allowance of INR 3,00,000 per month. He pays house rent of INR 2,40,000 to his landlord

The least from the following will be exempt from Taxes:

  • Rent paid (-) 10% of the total income: INR 1,68,000 [2,40,000-10%(7,20,000)]
  • INR 5000 per month i.e annually INR 60,000.
  • 25% of the total income: INR 1,80,000 [25%(7,20,000)]

INR 60,000 will be exempt from Sameer’s total income under section 80GG.

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Can I claim both House Rent Allowance and deduction on the Home loan?

Yes, you can. The benefits of House Rent Allowance and deduction for Home Loan can be availed simultaneously.

If you are living in a rental house & your own house is occupied by your spouse, children, and/or your parents, you can claim:

  • House Rent Allowance for the rent you pay to landlord &
  • Deduction for Home Loan interest up to a maximum of Rs. 2,00,000

If you are living in a rental house & your own house is also given on rent, you can claim:

  • House Rent Allowance for the rent you pay to the landlord &
  • Deduction for Home Loan interest without any limit

FAQs

How to calculate exemption on House Rent Allowance?

Exemption on House Rent Allowance is the lowest of
– Actual House Rent Allowance received from an employer
– 50% (for Metro) or 40% (for Non-Metro) of Basic Salary
– Annual Rent Paid – 10% of Basic Salary

Is House Rent Allowance deductible under section 80C?

No. House Rent Allowance is an allowance and is exempt from Salary Income. House Rent Allowance exemption is allowed u/s 10(13A) of the Income Tax Act. You can know your exempt House Rent Allowance from Form 16 issued by your employer.

Can I claim the House Rent Allowance exemption if I live with my parents?

You can go for a rental agreement with anyone except your spouse and claim House Rent Allowance. So, if you have a rental agreement with your parents, you can ask for the House Rent Allowance tax benefit from your employer.

Which ITR needs to be filed if House Rent Allowance is claimed?

Salaried individuals can file ITR-1 while claiming exempt House Rent Allowance. However, salaried needs to file ITR-2 if income is more than INR 50,00,000.

When do I need to submit PAN of landlord to employer?

An employee needs to submit the PAN of the landlord if the total rental payment for a year exceeds INR 1,00,000. If the monthly rental payment is more than INR 50,000 then the employee needs to deduct TDS at the rate of 5% u/s 194IB and need to file Form 26QC. In the case of NRI Landlord, an employee needs to deduct TDS on payment and TDS Return in Form 27Q needs to be filed every quarter.