Budget 2016 Update: The limit has been increased from Rs. 24,000 p.a. to Rs. 60,000 p.a. This Section has been explained below in detail.

Section 80GG provides for Deductions for House Rent paid, provided that a deduction for payment of House Rent has not been claimed under any other section of the income tax act. In other words, if a salaried employee is being given house rent allowance by his employer and he is claiming a deduction from the same, he won’t be eligible to claim deduction under Section 80GG for payment of Rent.

All other taxpayers who are neither getting benefit of House Rent Allowance and nor have they claimed the expense for rent paid under any other section of the income tax act, can claim deduction under Section 80GG.

Conditions for claiming deduction under Section 80GG for Rent Paid

Deduction under Section 80GG for payment of Rent can be claimed at the time of filing of income tax return, only if the following conditions are satisfied:-

  1. Deduction under Section 80GG for Rent paid is only available to an Individual.
  2. The taxpayer is either Self employed or Salaried (but does not receive any benefit of deduction under Section 10(13A) for House Rent Allowance)
  3. The taxpayer himself or his spouse or Minor Child or HUF of which he is a member should not own any accommodation at the place where he is employed or carries on his business or profession.
  4. If the taxpayer owns any property at any place other than the place mentioned above, he should not be claiming benefit of that property as Self-Occupied Property. That other property would be deemed to be let-out.

If the taxpayer is claiming deduction under Section 80GG, he would also be required to furnish a declaration in Form 10BA that he satisfies all the conditions stated above. (Download: Form 10BA)

Amount of Deduction allowed under Section 80GG for Rent Paid

The Deduction allowed under Section 80GG for payment of Rent shall be the least of the following:-

  1. Rs. 5,000 per month
  2. Rent Paid (minus) 10% of the total income
  3. 25% of the total income of the taxpayer for the year

Total Income means Total Income of the taxpayer for the year before claiming any deduction under Section 80GG. Moreover, the total rent paid for Furnished/Semi-Furnished House would be considered for the purpose of claiming deduction under Section 80GG.

Illustration explaining computation of deduction allowed u/s 80GG

For eg: Mr. Ram annually earns Rs. 3,00,000 (after all deductions) and pays an annual rent of Rs. 1,50,000. In such a case, the deduction allowed would be least of the following:-

  1. Rs. 5000 per month i.e. Rs. 60000 per annum
  2. Rent paid i.e. 1,50,000 minus 10% of total income i.e. 30,000 =  1,20,000
  3. 25% of total income i.e. Rs. 75,000

The least of the above would be allowed as a deduction and therefore Rs. 60,000 would be allowed as a deduction under Section 80GG for the complete financial year.

There are various other ways of saving taxes as well which have been explained in this article – 8 ways to save taxes legally through Tax Planning