Section 80GG

Explanation of Section 80GG

• Who can claim: Any individual (salaried or self-employed) who pays rent and does not receive HRA from their employer.

• Eligibility: The individual, their spouse, or minor child must not own any residential property in the city where they reside or work. If they own property in another city, they can still claim the deduction.

• Tax regime: This deduction is only available under the old tax regime, not under the new default regime (Section 115BAC).

Key Components

• Deduction Limit: The least of the following three amounts can be claimed as a deduction:

  • ₹5,000 per month (i.e., ₹60,000 per year)

  • 25% of adjusted total income (after certain deductions)

  • Actual rent paid minus 10% of adjusted total income

• Adjusted Total Income: Gross total income minus long-term and short-term capital gains, and all deductions under Sections 80C to 80U (except 80GG).

• Documentation: Must file Form 10BA with rent payment details and rent receipts. If the annual rent exceeds ₹1 lakh, the landlord’s PAN is required.

Example

 Suppose an individual has:

• Adjusted total income: ₹5,00,000

• Rent paid: ₹15,000/month (₹1,80,000/year)

Calculation:

• Rent paid minus 10% of income: ₹1,80,000 – ₹50,000 = ₹1,30,000

• 25% of income: ₹1,25,000

• ₹5,000/month: ₹60,000

Deduction allowed: ₹60,000 (the least of the three).

Benefits

• Reduces taxable income for those not receiving HRA.

• Available to both salaried and self-employed individuals.

• Encourages rental housing and supports individuals unable to afford property ownership.

Challenges

• Deduction amount is capped at ₹60,000/year, which is low compared to urban rents.

• Strict eligibility criteria: cannot claim if you, your spouse, or minor child own a house in the city of work/residence.

• Not available under the new tax regime (default from AY 2024-25).

• Requires detailed documentation and timely filing of Form 10BA.

In summary, Section 80GG provides a valuable deduction for individuals who pay rent but do not receive HRA, helping reduce their taxable income. However, it comes with limitations on the amount, eligibility requirements, and documentation, and it is not available under the new tax regime.