How to Avail Tax Deductions on Rent Under Section 80GG

House Rent Allowance (HRA) typically is a part of your income, for which you can claim an income tax deduction. Section 80GG of the Income Tax Act, 1961, provides tax benefits for individuals residing in rented accommodations when HRA is not included in their monthly salary.

Both salaried and self-employed professionals who meet the requirements may take advantage of the deduction under Section 80GG. Therefore, both business owners and salary earners can avail themselves of this specific tax deduction.

As previously stated, there are requirements that must be met in order to qualify for tax deductions under section of the ITA. 

Some of the requirements that someone must meet in order to claim the Section 80GG deduction are listed below:

• Only individuals and HUFs are eligible for these deductions

• Businesses and other entities cannot claim the same tax benefits for rent payments

• Applicants must submit Form 10BA to declare no benefits from property that is self-occupied 

• Submission of the homeowner's PAN card copy is required for annual rents over ₹1 Lakh

• Those who claimed HRA in the financial year, even if for only one month, are ineligible for this deduction, including job changers

Individuals living in their parent’s home are also eligible to apply for Section 80GG benefits. One would have to execute a rent agreement with their parents in order to achieve this. Additionally, when the parents submit their yearly taxes, the sum listed as rent will be subject to taxation.

This clause also allows non-resident Indians to seek tax benefits. To apply for the same, they must, however, be renting a house in India.

Form 10BA is mandatory for anyone wishing to take advantage of Section 80GG tax benefits. Before submitting Form 10BA, the following information must be filled out:

• Complete address and zip code

• Assessee's name and PAN

• Payment method

• Residency tenor

• Rental charge

• Contact information for the property owner

• Declaration stating that the assessee, their spouse, minor child, or the HUF they are a member of do not own any other house property

If the annual rent exceeds ₹1 Lakh, the owner of the rental property must provide their PAN number

Property owners can only avail deductions under Sec 80GG of the Income Tax Act if they meet the following two requirements:

• They must be currently residing in a property and paying rent for it

• The property or properties they own shouldn't be close to where they work or live

The section 80GG deduction eligibility does not extend to those who own property in the city and yet live on rent in the same city. While collecting the rent benefits in the city where they work, one can own property in another city or region. In this scenario, the owned property is classified as being rented out.

The Tax Rule 2A provides the foundation for tax deductions under this section. The lowest sum from the subsequent calculations is regarded as non-taxable income in accordance with Section 10(13A).

• ₹5,000 per month or ₹60,000 annually

• The amount of the annual rent less 10% of the taxpayer's adjusted gross income

• 25% of the yearly adjusted total income

Keep in mind that only the lowest of the three values determined for an individual qualifies for the Section 80GG benefits.