Section 8OGG of Income Tax Act

To find out the limitation of 80GG deductions, it is necessary first to understand what 80GG is all about.

The Section 80GG rule of the Income Tax Act, 1961, is a specific provision that allows individuals residing in rented properties the benefit of tax deductions or claim relief if they do not receive HRA as part of their salary package.

HRA, or House Rent Allowance, is a common salary division head, offered by many organisations. It is helpful for any individual or employee living in a rented accommodation to manage their financial expenses better.

However, if employees do not receive HRA even with a rental accommodation, they can claim valid tax deductions as part of the 80GG tax exemption clause.

Given the benefit of deduction under Section 80GG, it is essential to look into the critical components of this section. The list includes:

Eligibility

There is a specific criteria for eligibility to avail of the benefits under section 80GG. The eligibility criteria consists of:

You must be an individual and file for individual tax returns

You need to be either salaried employee or a self-employed individual

You should not be receiving HRA as part of your salary

The rental property should not be owned by you, your spouse, or a child

You are not eligible for this provision if you own a property in another city

A salaried employee must not claim HRA throughout the fiscal year to be eligible

Individuals living on rent on properties owned by family members, like parents, uncles, etc., are also eligible for deductions under section 80GG. Please note to be eligible under this clause; you must have a rental agreement with your parents and pay rent to them.

Evidence Required

The submission of the 10BA form is mandatory to claim a deduction under section 80GG

To avail of any deduction on a rental payment above ₹1 lakh, you are required to submit the original PAN card of the property owner

Correct rent receipts for each month or year

Rental agreement copy

Limits on Deductions

It is mandatory to choose one of the three scenarios below based on the least amount for the deduction limit

The rent payout should be under the 80GG maximum limit of ₹5000/ month or ₹60,000/ year

OR

The amount of rent claimable for deduction under this section needs to be equivalent to the total rent paid minus a 10% subtraction of the total income received

OR

25% of the annual income

To understand the calculation of deductions based on the criteria mentioned above of ₹60,000/ year, 25% of annual income, and total rent amount minus 10% of the total income, here is an example.

Rajneesh earns ₹6,00,000 annually. His monthly rent is ₹10,000. The three case scenarios for comparison are as follows.

25% of the adjusted total annual income= 25% of ₹6,00,000 = ₹1,50,000

Annual rent - 10% of the annual adjusted income = (₹10,000 x 12) - (10% x 6,00,000) = ₹1,20,000 - 60,000 = 60,000

₹5000 per month (₹60,000)

Out of these three, the lowest is ₹60,000.

Therefore, the tax claim amount is ₹60,000 for Rajneesh under Section 80GG.

For all salaried employees and self-employed individuals, tax deduction under Section 80GG is beneficial as it reduces the tax liability by a significant margin. If you pay rent but do not receive any HRA from your employer, you can easily file for tax deduction under this section.

It is necessary to have the correct information and cross-check eligibility criteria to ensure no rejection under this provision. Moreover, always calculate the deduction value using the above-mentioned method to know how much to expect.

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If I live in a house owned by my parents by do not pay rent, can I still benefit from tax deductions under section 80GG?

No, if you are living in a house owned by your parents but do not pay any rent or have a rental agreement, you might not be able to benefit from Section 80GG, as the eligibility criteria require rental payout proof.

What information is required to fill the Form 10BA?

Tenant details like name, address, and PAN number, along with rental payment details, payment mode, and landlord details, including name and address. If your rental payout value is higher than ₹1 lakh, you also need to provide the PAN number of the landlord.