Rent is a substantial monthly expenditure for many individuals and families. While House Rent Allowance (HRA) provides significant tax relief for salaried employees receiving it, not everyone is eligible for HRA. Sometimes HRA may not form part of your compensation package by the employer. If you don’t receive HRA as part of your salary, don’t worry. Section 80GG of the Income Tax Act, 1961, offers tax benefits on rent paid. Here’s a comprehensive guide on how you can leverage Section 80GG to reduce your tax liability.
Understanding Section 80GG
Section 80GG of the Income Tax Act allows individuals to claim a deduction for rent paid for residential accommodation. This deduction is available to those who do not receive HRA from their employer. Here are the key points to understand about Section 80GG:
1. Purpose: To provide tax relief to individuals who incur rental expenses but do not receive HRA.
2. Applicability: Both salaried individuals (without HRA) and self-employed individuals can claim this deduction.
Eligibility Criteria
To claim the deduction under Section 80GG, you need to meet the following conditions:
1. Non-receipt of HRA: You should not receive HRA from your employer.
2. Rent Paid for Accommodation: You must be paying rent for your residential accommodation.
3. No Ownership: Neither you, your spouse, minor child, nor the Hindu Undivided Family (HUF) of which you are a part should own any residential accommodation at the place where you reside, perform duties of your office, or employment or carry on business.
4. Filing Form 10BA: You must file Form 10BA to declare that you are not claiming the benefit of self-occupied property in any other location.
Calculation of Deduction
The amount of deduction under Section 80GG is the least of the following three amounts:
1. ₹5,000 per month (₹60,000 annually).
2. 25% of your total income (excluding long-term capital gains, short-term capital gains under section 111A, and income under section 115A or 115D).
3. Actual rent paid minus 10% of your total income.
Let’s break down the calculation with an example:
– Annual Rent Paid: ₹1,20,000
– Total Annual Income: ₹6,00,000
– 25% of Total Income: ₹1,50,000
– 10% of Total Income: ₹60,000
Using these figures, the deduction would be calculated as follows:
1. ₹5,000 per month = ₹60,000 per year
2. 25% of Total Income = ₹1,50,000
3. Actual Rent Paid – 10% of Total Income = ₹1,20,000 – ₹60,000 = ₹60,000
The least of these amounts is ₹60,000, so you can claim a deduction of ₹60,000 under Section 80GG.
Step-by-Step Process to Claim the Deduction
1. File Form 10BA: This form is a declaration stating that you do not own any residential accommodation. You can file Form 10BA online through the income tax e-filing portal.
– Log in to the e-filing portal.
– Navigate to ‘e-File’ > ‘Income Tax Forms’ > ‘File Income Tax Forms.’
– Select Form 10BA and fill in the necessary details.
2. Maintain Documentation: Keep records of rent receipts and the rental agreement. These documents should be properly signed by the landlord and should include details such as the address of the rented property, the rent amount, and the period for which the rent is paid.
3. Calculate the Deduction: Use the formula mentioned above to calculate the eligible deduction.
4. Include in ITR: While filing your Income Tax Return (ITR), include the deduction under Section 80GG in the ‘Deductions’ section.
Important Considerations
– Consistency in Payment: Ensure that your rent payments are consistent and well-documented.
– Form 10BA: Filing Form 10BA is mandatory to claim the deduction under Section 80GG.
– No Double Claims: You cannot claim the benefit of self-occupied property at any other location if you are claiming deduction under Section 80GG.
– Landlord’s PAN: If the annual rent exceeds ₹1 lakh, it is advisable to obtain the PAN of the landlord and mention it in your ITR.
Summing up
Section 80GG is a valuable provision for individuals who pay rent but do not receive HRA from their employer. By understanding the eligibility criteria and correctly calculating the deduction, you can reduce your tax liability significantly. Proper documentation and adherence to the guidelines are crucial to ensure a hassle-free claim.
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