Section 80GG – Save tax on house rent payments

House rent comprises major portion of family expenses. And this is considered to be a pure expense, without any tax benefit attached especially for those who don’t get House Rent allowance in their salary or even for those who are self- employed. But do you know that there is a provision in Indian Income tax act where one can save tax on the house rent payment?

Section 80GG of Indian Income tax act comes to the rescue of all those who are burdened under higher housing rentals . This is an old section but still many are not aware of this. It has gained attraction only when in this budget speech 2016, Finance Minister raised the minimum limit of exemption. In this article we’ll discuss in detail about section 80GG and how it will help in saving taxes on rent paid to those who don’t get any House Rent Allowance.

What is Section 80GG in Indian Income tax act?

Section 80GG is meant to provide relief on House rent paid, to those who don’t get any House Rent allowance from their employer or those who are in some business or are self-employed. However such relief/tax deduction is permissible subject to certain conditions. Person who wants to avail this benefit:

1.)    Should be an Individual

2.)    Should be residing in the same house for which he/she wants to claim the rent payment benefit.

3.)    If employed, should not be getting House Rent allowance. ( Read : how to claim HRA benefit)

4.)    Should not own any residential accommodation in the name of self, spouse, joint, minor child or HUF (which he/she’s a member of), near the place of ordinary residence or regular employment.

5.)    Should not own any residential accommodation at any other place, of which he/she is claiming Income tax benefit u/s 23(2) a or 23(4) a i.e. where the annual value of house is being taken as NIL as per Income from House property for calculation in Income tax

6.)    Should file declaration as per FORM-NO.-10BA, to claim the relief u/s 80GG

What is the Limit of deduction available in section 80GG?

If someone satisfies the above mentioned conditions, then he/she can claim benefit under section 80GG, as least of the following:

1. Rent paid minus 10% of adjusted total Income
2. Rs 5000 per month ( w.e.f FY 2016-17), earlier it was Rs 2000 per month
3. 25% of adjusted total Income

What is adjusted total Income?

To calculate the benefit available to you, you need to calculate your adjusted total income, which is Gross total income Less Long term and short term capital gain, and Less all deduction under section 80C to 80U, except section 80GG. In other words it would be only your salary or business income, before adding any long/short term capital gain, and after deducting any investments or claiming any tax benefit u/s 80C to 80U

Let’s understand all this with an example:

Rahul lives in Indore and works with a private limited firm. He earns salary of around Rs 8 lakh per annum, with no HRA in it. He Lives in a rented accommodation and pays Rent of Rs 15000 per month. Rahul usually makes Rs 150000 investment in PPF every year to save tax u/s 80c. If Rahul satisfies all conditions, then how much of section 80GG benefit he can claim?

Solution:

Gross total Income – Rs 800000

Savings u/s 80C – Rs 150000

Total adjusted income – Rs 650000

Rent paid in a year – Rs 180000

Least of following can be claimed as exemption u/s 80GG –

1. Rent paid minus 10% of adjusted total Income

Rs 180000 – Rs 65000 = Rs 1,15,000/-

2. Rs 5000 per month i.e. Rs 60000/-
3. 25% of adjusted total Income i.e. Rs 1,62,500/-

So Rahul can claim benefit of Rs 60000 under section 80GG on house rent paid. , so now his taxable income would come out to be Rs 590000, which otherwise would have been Rs 650000 ( if he’s not already claiming section 80GG benefit)

Conclusion:

Since changes in the limit under section 80GG requires amendment in law, so it has not kept pace with changes in law for HRA deduction, which requires just a notification. But finally after so many years government has realized that house rentals are actually very high and people should be given some relief on these expenses. Though in my view even Rs 5000 is too less, but still better than Rs 2000 earlier, and I hope that government would keep on revising this limit, keeping pace with ever increasing house rentals.