Introduction:

Home rents can pose significant burdens, particularly in urban locales where demand for rental properties drives up prices steadily. Those without House Rent Allowance (HRA) included in their monthly earnings feel the impact even more. Fortunately, Section 80GG of the Income Tax Act, 1961, provides an avenue for annual deductions on rent payments, offering some relief.

Section 80GG : 

Section 80GG, a unique provision within the Income Tax Act of 1961, offers tax relief to individuals who do not receive House Rent Allowance (HRA) from their employer. It enables them to claim deductions for the rent paid toward their accommodation, subject to specific conditions and limitations.

Section 80GG in the Indian Income Tax Act permits taxpayers to claim rent deductions if they’re not getting HRA from their employer, capped at Rs. 60,000 annually. Eligibility hinges on not owning residential property with a spouse or child, with deduction amount contingent on factors like total income and rent paid percentage.

Who is eligible to claim deductions under 80GG:

To claim deductions, an individual must meet the following conditions:

• Self-employed individuals or salaried professionals can leverage this provision for tax benefits. However, those without a source of income are ineligible for tax advantages under this provision.
• Section 80GG of the Income Tax Act applies to individuals who do not receive HRA from their employers. If a person’s salary includes HRA, they are ineligible to claim rent deductions under this section.
• Individuals residing with their parents on their property can also avail tax benefits under this Section by signing a rental contract with them. In this scenario, the amount declared as rent by the individual will be taxable when the parents file their income tax return.
• If an individual has claimed HRA from their employer for any month of the fiscal year, they are ineligible to file for a rent-based tax deduction.
• Non-resident Indians are also eligible for tax deductions related to house rent, provided that the rent pertains to a property within the country.

Form 10BA Under Section 80GG:

Form 10BA is a statement required to be furnished by a taxpayer who needs to maintain records of tax deductions for rent paid on a rental property under Section 80GG. This form enables the taxpayer to claim tax deductions when filing their Income Tax Return (ITR) for the rental property.

Filing Form 10BA is essential to avail benefits under Section 80GG of the Income Tax Act. This declaration confirms that the taxpayer has rented a house during a specific period and does not possess any other residence. The form requires furnishing the following details:

•  Name 
• PAN
• Address
• Rental cost
• payment mode
• Tenure of residency
• owner’s name and address
• PAN of the house’s proprietor
• Declaration confirming that neither the taxpayer, their minor child, nor their spouse owns any residential property.

Exceptions of Section 80GG:

• The individual must not own residential property in the area where they reside or work.

• If an individual resides in one city but owns property in another, they are ineligible to claim rental deductions.
• An individual who has previously claimed tax deductions on a residential property situated in a different location is ineligible to avail of these deductions.
• Residing with your parents presents an intriguing opportunity to leverage Section 80GG. By entering a rental agreement with them and paying a minimum rent of ₹60,000, you can potentially benefit. However, it’s crucial to acknowledge that your parents must declare this rental income in their tax returns.

What is the eligible amount for deductions under Section 80GG:

The deduction under Section 80GG will be based on the lowest of the following amounts:

• Rs. 60,000 annually or Rs. 5,000 monthly
• The deduction is calculated as the actual rent paid minus 10% of the individual’s adjusted total income.
• 25% of the individual’s adjusted total income is considered for the deduction.

Advantages of Section 80GG:

• Section 80GG enables individuals without HRA to deduct rental expenses, particularly benefiting those with lower incomes or starting their careers, reducing tax liabilities and boosting savings.
• Tax rebates are accessible to both salaried employees and self-employed individuals.

Disadvantages of Section 80GG:

• Section 80GG imposes a limitation, capping the maximum deduction at either ₹2,000 per month or 25% of the total income, whichever is lower. This restriction might result in a relatively modest tax advantage for individuals with substantial incomes or those facing high rental expenses.
• Another drawback of Section 80GG is that the rent paid must surpass 10% of the total income. Consequently, individuals with either low rental payments or high incomes may find themselves ineligible for this tax deduction.
• Individuals claiming a deduction under Section 80GG cannot avail themselves of tax rebates under other sections.

Final Word  : 

Section 80GG of the Income Tax Act provides a direct and effective means to claim a tax deduction for rental payments. Nevertheless, relying solely on these deductions might not sufficiently alleviate your financial obligations.