Claim Section 80GG Deduction on Paid Rent: Check Eligibility and Conditions

Over 28% of urban Indians live in rented homes, and not everyone receives a House Rent Allowance (HRA). To offer some relief, the Income Tax Act of 1961 includes Section 80GG under Chapter VI-A. 

Introduced in 1998, it allows salaried and self-employed individuals to claim tax deductions on rent paid, provided that the HRA is not part of their salary. Let us explore how the section 80GG deduction works, the conditions you must meet, and how much deduction you can claim.

Quick Synopsis

• Under Section 80GG you can claim deductions for rent paid up to ₹60,000 per year.
• You need to fill out Form 10BA to claim deductions under Section 80GG.
• If you have rent receipts, you can claim deductions for shared accommodations.

Who is Eligible for the Deduction Under 80GG?

It is essential to fulfil several criteria to be eligible for availing tax relaxations under section  80GG of the Income Tax Act. In the section below, you can find some of the most important pointers that one has to meet to benefit from Section 80GG deduction:

• These tax deductions are only extended to individual Indian residents and Hindu Undivided Families (HUFs). Other enterprises and businesses cannot claim income tax exemptions after meeting their due rents in a single financial year.
• If anyone currently has no income source, they are automatically disqualified from receiving 80GG deduction advantages, even if they pay rent. 
• If you want to leverage this tax benefit, you must submit Form 10BA to the Income Tax Department beforehand. It is a formal declaration stating that you won’t claim to benefit from any owned property simultaneously. 
• Those who do not get any house rent allowance as a part of their salary should rely on the features of Section 80GG of the IT Act. Contrarily, if someone already gets HRA, then they are not eligible for 80GG deductions.
• In case a taxpayer's yearly house rent crosses the threshold of ₹1 lakh, then they must upload a copy of the house owner's PAN card. Without this document, they won't be allowed any income tax deductions. 
• Finally, someone who is looking for tax rebates under Section 80GG should not claim HRA during any part of the same financial year. Employees who are particularly looking for a job change should keep this pointer in mind. 

Even if you live in a house owned by your parents, you can still qualify for Section 80GG benefits. However, to make this happen, you have to sign a legal rental agreement with your parents. In addition, the rental amount will be considered taxable at the time when parents file their annual taxes. 

NRIs (Non-resident Indians) can also claim an 80GG deduction. But, they must pay rent for a property located in India to qualify for this provision.

How is the 80GG Deduction Limit Calculated?

When performing an 80GG deduction calculation, you must pick the least of the below-mentioned amounts:

1. Rent Paid Subtracted by 10% of the Adjusted Gross Income

Here, an individual’s adjusted total income plays a very important role. It is determined by considering deductions under Section 80C to 80U (eliminating 80GG) and not taking into account long-term gains. This is a fair calculation that ensures that the overall tax deduction is rational when compared to a person’s overall financial status. 

2. ₹5,000 Monthly Rebate 

Regardless of the home rent one pays each month, their maximum 80GG deduction limit is set at ₹5,000. It ensures a standardised advantage, particularly for people who need to pay lower house rents.

3. 25% of Total Adjusted Income

This final provision makes sure that the income tax deduction happens in a reasonable manner, in proportion to a person’s overall income. 

Looking to grow your wealth while minimising tax impact? Explore Stable Money, a trusted platform to discover safe, high-return investment options that align with your financial goals and risk profile.

How Can Property Owners Claim an 80GG Deduction?

Property owners or homeowners can claim 80GG tax rebates only when they meet a couple of criteria. These include:

• The landlord must be presently paying rent for a property where they live currently
• The property they have rented should not be in the same location or city as their current workplace. 

As a homeowner, you can enjoy rental income from a property in one city while claiming rent benefits u/s 80GG in your city of residence. In these situations, the property owner is considered to be let out. 

Documents Needed to Claim 80GG Deduction

The following documents are required to claim the income tax rebate under Section 80GG successfully:

• Duly filled Form 10BA.
• PAN card of the assessee.
• Address proof documents like an electricity bill, gas bill or any other related document.
• Form of rent payment, amount and tenure of renting the house.
• A written declaration that the applicant does not own any other dwelling property. Also, their spouse, child or HUF they belong to should not own a residential property. 
• Landlord’s address and official name.
• When the house rent amount is more than ₹1 lakh, then the PAN card of the homeowner is required.

Common Mistakes to Avoid While Claiming Under Section 80GG

Here are the common mistakes you need to avoid while claiming deductions under Section 80GG:

• Ensure you file Form 10BA which is mandatory for claiming deduction under this section.
• You need to calculate your rent accurately excluding maintenance charges.
• Ensure you do not claim deductions under this section if your salary includes HRA (House Rent Allowance).
• You need to keep your rent receipts and rent agreement as payment proof. 
• In case you own a property in the same city, you cannot claim deductions under this section. 

Final Word

Eligible Indians can easily claim an 80GG deduction by filling out Form 10BA. However, above all, they must be living in a rented property to avail the associated benefits. To optimise your wealth creation, besides managing tax, you can consider investing in high-return fixed deposits. 

Download the Stable Money app and explore FDs that offer up to 8.50% interest per annum! The FD providers registered on our platform are DICGC-approved, making investments 100% risk-free.