Buying your own house always being a priority for the salaried person, although there are several options available in the market to get the home loan. An option of a home loan is also not easy for the employee, most prefer to rent the house. Deduction under section 80gg is introduced to avail the benefit of taxation for the rent amount paid.
What is Deduction u/s 80GG?
Usually, salary received from your employer consist of HRA.
In some cases, consolidated salary received, which doesn’t mention HRA separately.
Section 80GG plays a role for you for the exemption of HRA amount paid for rent.
There is an option available in ITR form u/s 80GG to avail rent paid.
Also Read: What is Form 15G Form 15H?
How deduction u/s 80GG works?
Section 80 GG also comes with some of the boundation, not every individual get the benefit of it.
Following condition required to take benefit u/s 80gg.
- Must be an individual employee or HUF for the financial period.
- You have not received HRA from your employee in any form during the financial year for which you are claiming 80GG.
- You or your family member (spouse or your minor child) do not own any residential accommodation at the place where you currently reside.
- Some for the HUF, any kind of office or employment or carries on his business or profession where the taxpayer resides.
- Deduction under section 80GG is exempted if you are in the possession of any self-occupied property.
Example:- If you are having a property like Flat in the same city which you have let out for rent and you are leaving in a rental house within the same city, you can’t avail the benefit u/s 80gg.
Also Read: – Section 44ADA
Amount of tax exemption under section 80 GG
There is a certain limit fixed by the income tax department to benefit the employee:
- Annually ₹ 60000 (₹ 5000/month) exemption amount is allowed to avail the benefit. or
- 25% of the total income of the employee, after all, adjustments (80C to 80 G).
- An amount equal to the total rent paid minus (10% of the total income).
The amount comes out the least from the above three examples should be claimed for tax exemption u/s 80 GG.
Understand with the help of an example – Declaration under section 80GG
Let’s take an example:
Mr. Raj received an annual salary of ₹ 400000, he pays an annual rent of ₹ 150000.
After putting this example in the above scenario, the tax deduction allowed to him would be:
- ₹ 5000 per month (₹ 60000 annually), this is fixed if you go through it.
- 25% of total income (25% of ₹ 400000) i.e. ₹ 100000.
- Actual rent paid ₹ 150000 (₹ 150000 – 10% of ₹ 400000 (Total income) i.e. ₹ 40000 = ₹ 110000).
The amount comes out the least from the above three examples should be claimed for tax exemption u/s 80 GG. From the above example, Mr. Raj can claim ₹ 60000 annually u/s 80GG.
Also read: Income tax rebate
Documents required u/s 80GG
- An employee needs to furnish a rent agreement along with rent receipt monthly.
- It is mandatory to fill Form 10 BA to claim tax deduction u/s 80GG.
Income tax department provides the option to fill Form 10 BA online through their website.
After selecting “Income tax forms” you will get the option of form selection, which brings you to the list of the form:
After selecting the form and inserting assessment years along with submission mode Click continue:
You will get “Form 10 BA” – Declaration to be filled by the assessee claiming deduction under section 80GG.
This form is very clear to understand and after filling the form just click submit to complete the process of claiming tax deduction u/s 80GG.
After submission of this form, you can insert the amount in the portion of Part D “80GG” in your ITR Form.
Form 10ba is mandatory to prove that the employee is not claiming any benefit of the self-occupied property where he is employed.
Examples to understand section 80GG deduction calculation
Mr. X working in a multinational company and the accommodation near his company office on rent in Delhi. He is a proper resident at Bhopal.
He is not getting HRA from his employer in any form.
Mr. X owns an accommodation at Bhopal which he has given out on rent.
So comes to the point.
The above information is eligible for Mr. X to claim under section 80gg.
Gross total income of Mr. X is ₹ 5,20,000/-
Deductions under section 80C to 80U (Excluding under 80GG) – ₹ 1,50,000/-
Adjusted Total Income of Mr. X – ₹ 5,20,000 – ₹ 1,50,000 = ₹3,70,000/-
Lets Calculate 80gg limit:
- ₹ 5000 per month – ₹ 60,000 annually.
- 25% of adjusted total income – 25% of ₹3,70,000 = ₹ 92500
- Actual rent – 10% of adjusted income = ₹ 60,000 – (10% * ₹3,70,000) = ₹ 23000
According to the above calculation under all three scenario.
Mr. X can claim ₹ 23000 under section 80GG.
Also Read: Section 80C Complete Guide