The tax liability of a person becomes quite challenging if he also has to manage his house rent. The problem can be triggered even further if his employer does not pay him Housing Rent Allowance (HRA). In such a situation, a provision of the Income Tax Act, 1961 can come really handy. Many people are not aware of section 80GG deduction of the Income Tax Act, 1961. This provision allows you the benefit of claiming a deduction for the house rent you pay.
What is an 80GG deduction?
Many people receive HRA as part of their employment. But if you do not get an HRA, then you become eligible for taking advantage of the section 80GG deduction. However, just not receiving HRA will not be sufficient for you to become eligible for section 80GG. Other factors also play an important part here.
Ways to Reduce Tax Under Section 80GG:
- You have to be self-employed or a salaried individual to avail the benefits of 80GG deduction.
- Neither you, your wife, child, or any other member of your Hindu Undivided Family should own a residence in the accommodation for which you are claiming tax deductions using section 80GG. Having your own property will render the claim for rent as a deduction in your IT file null.
- The year in which you are filing for 80GG should not correspond with the year you received HRA. To claim an 80GG deduction, you should be the one who does not receive HRA.
- If you own a residential property for which you get an income will make a direct impact on your claim under section 80GG. Having a housing property from which you make an income does not qualify for any tax deduction under section 80GG for the rent you pay.
- Form 10BA is the document that you have to fill and submit to the authorities to claim a tax deduction for the rent you pay for the rental residence.
- You must be paying rent for the property you are presently living or residing in.
Amount of Deduction
The deduction granted by the tax authorities under 80GG is based on considering the lowest of the following three factors:
- A tax deduction of the maximum of Rs 5,000 per month.
- 25% of your total income. The total income here excludes capital gains, both short-term and long-term.
- The annual rent of the person minus 10% of the person’s salary.
To know more about the amount of deduction under 80GG, click here:
Whenever you claim a tax deduction for the rent paid under 80GG, you will have to fill and submit form 10BA. Here are the important things to fill correctly in form 10BA:
- Your address of the accommodation you are residing in.
- You full name
- Your PAN card details
- Your residency tenure in months
- The rental amount you pay. Note that you will not be getting the benefit of over Rs 5,000.
- You will also have to give the details of the property owner. His name and address must be mentioned in the form 10BA.
- You have to make a declaration in the form that you (assessee), your spouse, or your minor children do not own residential property.
- If the amount of rent exceeds more than Rs 1,00,000 in a fiscal year, you have to give the property owner’s PAN card details.
You can easily access form 10BA in the tax offices or any well-known human resource department of an organization. But now, you can also access the form online, which is the most convenient medium of all.
Thus, using section 80GG, you can claim a tax deduction on the rental expenses you make every month without HRA. However, you must read the terms and conditions of the 80GG deduction well to confirm your eligibility.