What is Section 80GG? Advantages, Disadvantages and Eligibility to Claim Deduction for House Rent

In most cases, House Rent Allowance (HRA) is a part of employees’ salary and they can claim an exemption for HRA. Hence, if an employee doesn’t receive any HRA from their employer, and if the individual is paying an amount toward rent or accommodation of a furnished or unfurnished house, they can claim a deduction u/s 80GG towards the rent they pay.

Thus, tax deductions on rent can be availed by employees who don’t receive HRA but pay rent for their accommodation. However, this benefit can be availed of by an individual if the person or their spouse does not own a residential property. Form 10BA is a form that is required to be filled out to claim deduction under section 80GG.

Eligibility to Claim 80GG Deduction 

To claim a deduction u/s 80GG, taxpayers must fulfill the below conditions: 

• If an employee didn’t receive HRA during a financial year from their employer, they are eligible to claim a deduction under 80GG
• Sec 80GG deductions can be claimed by Individuals and HUFs only. Companies/ businesses cannot claim deductions under this section
• If there is no residential property (including the one where they are residing currently) owned either by a taxpayer, their spouse, or a minor child, the individual can claim 80GG deductions
• Tax deduction can be availed of by filing out Form 10BA with rent payment details
• If the rent amount of an employee is beyond INR 1 lakh per annum, they must submit the PAN details of the landlord to claim the deduction
• If an employee hasn’t claimed HRA during any point in the financial year, but received an HRA deduction from the previous employment during the financial year, the employee cannot claim an 80GG deduction

Advantages and Disadvantages of Section 80GG

Here are some benefits of section 80GG:

• Section 80GG allows employees to avail of tax deductions if they haven’t received any house rent allowance and they pay for accommodation
• Section 80GG benefits low-income individuals or the ones who have just started their careers and helps them reduce tax liability and save more
• Deductions under section 80GG are available for both salaried as well as self-employed individuals

Below are some disadvantages of section 80GG:

• Individuals claiming an 80GG deduction cannot claim tax rebate under other sections for the same rent paid

Deduction Limit Available Under 80GG 

One can claim the 80GG Income Tax Act deductions from among the following (the least amount):

• HRA received from the employer
• Actual rent paid minus 10% of salary
• 50% of the basic salary for those living in metro cities
• 40% of the basic salary for those living in non-metro cities

How is Tax Calculated Under 80GG? With Illustration

80GG tax deduction and its limit are made per Income Tax Rule 2A. Let’s take an example to understand the 80GG deductions of the Income Tax Act:

Swati lives in Delhi and earns a basic salary of INR 40,000 per month. She receives a House Rent Allowance (HRA) of INR 20,000, while she pays INR 15,000 as rent every month.

Let us see how we can apply the rules in the above section in this case.

Scenario 1

1. Actual HRA received from the employer:

So, Swati can get a tax deduction of up to INR 20,000 X 12, which comes to INR 2,40,000 per annum

2. Actual rent paid minus 10% of basic salary:

Here, the amount would be – INR 15,000 X 12 = INR 1,80,000 – INR 48,000 (10% of salary) = Rs. 1,32,000

3. 50% of basic salary (residents of metro cities):

This is equal to INR (40,000 X 12) X 50% = s2,40,000

In the above case, the second condition is the least amount among the three, and hence, Swati would be eligible for an INR 1,32,000 tax deduction under Section 80GG

Section 80GG Limitations/Exceptions

• An individual cannot claim a tax deduction for rent under 80GG if he owns a residential property in the city/location where the person is employed.
• Also, an employee cannot claim a house rent deduction in case the person is already claiming benefits for a residential property that he/he owns in another city/location. So, if an employee is living in a city and has a residential property in another city, the authorities will consider the house to be rented out.
• However, people living with their parents can avail of Section 80GG deductions in a special way. In such cases, individuals can create a rent agreement with their parents to claim a deduction of the maximum limit as rent. Here, the parents must also show proof of the amount received as income while declaring tax.

Documents Required to Claim Deduction u/s 80GG 

Deduction Under Section 80GG can be claimed by filing Form 10BA along with ITR. Below is some compulsory information that the form needs to be filled with:

• Rent amount being paid
• Valid address of the landlord and the taxpayer
• Rental duration
• Rent receipts
• Basic details like name, contact number of taxpayer and landlord

Also, keep the rent agreement and valid ID cards close by (in case required) while filing the claim.

Where to Get Form 10BA?

You can get Form 10BA from the HR department of your company or the income tax offices. You may also download Form 10BA from the Income Tax website.

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