Section 80GG – Deduction for rent paid

Sec 80GG – Deduction in respect of rent paid

• This section has been introduced to provide relief to those individuals who do not receive any HRA but are paying rent for the stay. Thus, an individual (i.e. Deduction not available to any other taxpayer) can claim a deduction for rent paid even if he or she does not get house rent allowance (HRA).

 

1. Eligible Assessee

Individual assessee who

• Is not in receipt of HRA exemption u/s 10(13A) from employer, and
• Pays rent for accommodation occupied by him for residential purposes.

2. Conditions:

• The Assessee should not be receiving any HRAfrom his employer
• The individual has filed a declaration in Form No 10BA, confirming the details of rent paid and fulfilment of other conditions, with the return of income.
• Any expenditure incurred by him on rent of any furnished or unfurnished accommodation should exceed 10% of his total income arrived at after all deductions under Chapter VI A except section 80GG.
• The accommodation should be occupied by the assessee for the purposes of his own residence.
• The assessee or his spouse or his minor child or an HUF of which he is a member should not own any accommodation at the place where he ordinarily resides or perform duties of his office or employment or carries on his business or profession; or
• If the assessee owns any accommodation at any place other than that referred to above, such accommodation should not be in the occupation of the assessee and its annual value is not required to be determined under section 23(2)(a) or section 23(4)(a).

3. Quantum of deduction: The deduction admissible will be the least of the following:

• Actual rent paid minus 10% of the total income of the assessee before allowing the deduction, or
• 25% of such total income (arrived at after making all deductions under Chapter VI-A but before making any deduction under this section), or
• Amount calculated at Rs.5000 p.m.

4. How to claim HRA by paying rent to your parents?

A person living in her parents’ house can pay them rent and claim exemption for the HRA, provided the parent owns the property. Even in the highest 30% bracket, the arrangement makes sense because there is a 30% standard deduction on rental income. One can claim exemption for monthly rent of up to Rs 5,000 under Section 80GG. Of course, the rent received by the parent will be subject to tax but still they get the benefit of 30% Standard deduction.

• You can pay rent to your parents if you are staying with your parents by transferring the money (rent) to their bank account or pay via a cheque. This way you will be able to claim your HRA deduction properly.
• Rent is paid to owners, so the property must belong to your parents. Either one or both of your parents may own the property. In other words, you can deposit the money to either parent in case of joint house ownership, or to the parent who owns the house legally.
• You cannot be an owner or co-owner of this property because you cannot claim a tax deduction for rent paid to yourself.
• Rent agreement and rent receipts are required to claim the HRA while staying with parents.
• You can enter into a simple rent agreement with your parents.

5. Meaning

• HRA : HRA is the house rent allowance in income tax. It means the salary component received towards the rent payment and is allowed as a deduction from taxable salary under Section 10(13A)

ILLUSTRATION 1

Mr. Mahaveer, a businessman, whose total income (before allowing deduction under section 80GG) for A.Y.2022-23 is 4,60,000, paid house rent at 13,000 p.m. in respect of residential accommodation occupied by him at Ahmedabad. Compute the deduction allowable to him under section 80GG for A.Y.2022-23.

SOLUTION

The deduction under section 80GG will be computed as follows:

(i) Actual rent paid less 10% of total income

1,56,000 (-) (10% x4,90,000)

=1,07,000

(ii) 25% of total income

25% ×4,90,000

= 1,22,500

(iii) Amount calculated at 5,000 p.m. = 60.000

Deduction allowable u/s 80GG [least of (i), (ii) and (iii)] = 60,000

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