What is Section 80GG?
Word “home” and the feeling associated with owning one is a dream everyone in India has and is working and saving towards achieving it however buying your own house is not an easy or rather a daunting task in itself and though several banks claim to offer quite a lucrative offers and easy sanction of home loans, many of us prefer or choose to live in a rented accommodation, at least for the initial years of our career. Because even if one manages to get a home loan, paying hefty installments on the same is another uphill task which not many are willing to take in his or her initial years.
Indian government is aware of this very fact and has thus come up with Section 80GG which is applicable to a self-employed person, businessman and salaried persons and it caters for the deductions for the house rent paid provided you have not claimed for any deduction under any other section of the income tax act i.e. in case if you are claiming deductions based on the house rent allowance, you will not be claim any deductions under Section 80GG of the Income Tax Act 1961. Although Section 80GG offers wide range of benefits, it is undoubtedly a bit ignored section of the Income Tax Act 1961.
Also Read: Income Tax Slab
Normally HRA i.e. Housing Rent Allowance is a part of salary based on which you can claim deductions however there is a section of employees which does not get HRA or any similar component to HRA as a part of their salary. In case you fall under the section of the employees who are not entitled for getting HRA, Income Tax Act still got your covered by introduction of a lesser known provision which allows you to claim tax benefit provided you fulfill certain criteria and if you are staying in a rented accommodation and making payments towards rent for any furnished or unfurnished accommodation which is occupied for your own residence, you are allowed to claim deductions under Section 80GG towards your rental amount, based on below mentioned conditions:
House Rent Allowance
House Rent Allowance or HRA is a basic component of the salary provided by the employer to his employees, which is fully taxable if you are not living in a rented accommodation i.e. in case you are paying rent for any furnished or unfurnished accommodation occupied by you for your own residence, a portion of HRA may be exempted from tax otherwise tax will be applicable. The intention behind having HRA as a part of your salary is usually to meet cost of your rented accommodation you may be living in.
Calculation of your HRA is based on four factors:
In order to claim deduction from HRA, you need to fulfill below mentioned conditions:
In order to claim deductions under Section 80GG of the Income Tax Act 1961, you need to furnish below mentioned documents:
The deduction available from HRA is the minimum of the following amounts:
For example: If Mr. Akshay lives in Kolkata and draw Rs 50,000 as his basic salary and RS 20,000 per month as his HRA. He is staying in a rented accommodation for which he is paying Rs 18,000 as monthly rental.
HRA exempt amount will be the minimum of the following calculated amount:
Thus HRA exempt will be Rs 13,000 and RS 7,000 ( Rs 20,000 – Rs 13,000) will be a part of his taxable income on account of HRA.
As per Section 80GG of the Income Tax Act, deduction allowed under it should be least of the following mentioned:
For example: Mr. Anil pays monthly rent of Rs 10,000/- and his total income before any deduction is Rs 4, 80,000. As per the Section 80GG of the Income Tax Act, deductions allowed to Mr. Anil will be as per the below mentioned calculation:
- Amount calculated at Rs 5,000 per month = Rs 60,000.
- 25% of the total income without any deductions = 25% * Rs 4,80,000 = Rs 1,20,000.
- Rent Paid Less 10% of the total income = [[Rs 10,000 * 12) – (10% * Rs 4,80,000)] = Rs 72,000
- Lowest of above is Rs 60,000 which will allowed as deduction under Section 80GG of the Income tax Act.
Exemptions under Section 80GG
Income Tax Act allows certain exemptions under Section 80GG such as: