Section 80GG: Claim Tax Deductions on Rent Paid for Indian and NRIs?

Are you a salaried individual in India who pays house rent but does not receive any HRA (Home Rent Allowance) benefits? If so, then under Section 80GG of the Income Tax Act, 1961, you may be eligible for tax benefits. It allows you to claim a deduction for paid rent if you do not get HRA. To claim a deduction under this section, it is vital for you to live in a rented property, and you should also not have your own home in the same city. In addition, if you receive HRA from your employer as part of your monthly salary, you cannot claim a tax deduction. Apart from this, this section is applicable to all, whether it is Indian residents or non-resident Indians (NRI), and salaried persons or self-employed professionals. Therefore, if an NRI is a self-employed person and he/she live in a rented property in India under 80GG, they can claim tax deduction. Want to know more about this section and how you can claim tax deduction on your paid rent? Read on the blog and get your answers.

What Is Section 80GG?

In India, among the working population, whether it is Indian or non-resident India, for a large section, it has been essential to live in a rented house. It is because, when you move for work to a new city or country, it is not possible to have your own house everywhere. As an outcome of that, you live in a rented house or apartment. For a person like you, it is an essential expense. Considering this, the income tax department of India under Section 80GG offers tax relief to individuals on their paid rent. Under Chapter VI-A of the Income Tax Act, Section 80GG is a tax deduction. It offers tax relief to people who do not have any HRA but pay rent for their stay. Through this section, you can get off the burden from your shoulders of house rent. As a person, and especially if you are self-employed, this is the right section for you.

Additionally, individuals living in their property of their parents, which they own, can also claim tax benefits under this section. However, for this, they need to sign a rental agreement with their parents and pay them rent every month. Here, the rent amount will be taxable by their parents when they file their income tax return (ITR).

Note: The HRA exemption and section 80GG tax deduction are only available under the old tax regime.

This was all about section 80GG under the Income Tax Act, 1961. Moving further, let's know the eligibility criteria to claim tax deduction under this section.

Eligibility Criteria for Section 80GG for Indians & NRIs

To avail of the tax benefits under section 80GG of the Income Tax Act, whether you are a resident in India or an NRI, employed or self-employed, you need to fulfill some conditions. Below are some of the eligibility criteria that you need to satisfy if you want to claim the section 80GG tax deduction:

• If you are a salaried or self-employed person and in your CTC, you do not have any HRA component, then you can claim a tax benefit under this section.
• Companies and firms for their rental expenses are not eligible to claim tax deduction under section 80GG. Only HUFs and individuals are eligible to claim tax deduction.
• If you are salaried employed and receive RFA or HRA benefits, you cannot claim tax benefits under this section.
• For any kind of residential property that is furnished, unfurnished, or even semi-furnished, you can claim a tax deduction under this section where you live as a tenant.
• In case you have any house property of your own at any place, and the income from it is calculated under any applicable tax section as property that is self-occupied, you cannot claim tax deduction under this section.
• As mentioned above, NRIs can also claim tax relief under this section if they live in a rented house in India and earn income in the country, whether it is a remote work.
• If you, your partner, your minor child, or HUF in which you are one of the partners, does not hold any residential property where you live currently and do a job, conduct office duties, or carry on a profession or business can claim tax benefit.
• Apart from these, any property, whether it is a building, shares, jewelry, land, shares, patents, trademarks, or more, you hold will be considered your capital assets.
• If the annual rent is more than INR 1,00,000, then when applying for the tax benefit, the taxpayer needs to provide a PAN card copy of the house owner.
• If you want to claim tax benefits on your paid rent under section 80GG of the Income Tax Act need to first correctly fill out Form 10BA. This form serves as evidence that the individual filing this form does not receive any benefit from a self-occupied property in any place.

These are some of the eligibility criteria that a person needs to fulfill to claim tax benefits under section 80GG of the Income Tax Act. Furthermore, here are some exceptions also under this section, so let's know about them.

Exceptions Under Section 80GG

Here are the following criteria that do not fall under section 80GG:

• At any time during a financial year, for which under section 80GG, claiming tax benefit, should not claim HRA.
• Even when an individual did not acquire HRA for a substantial part of the year, receiving it in one month disqualifies them yearly for claiming tax benefits.
• If the salary of an individual includes an HRA amount, he/she cannot claim a tax benefit under this section.
• In case you are a non-resident Indian living outside India and paying rent overseas, you generally cannot claim the tax benefits under section 80GG unless you have taxable income in India and you fulfill all the conditions.
• Section 80GG is only applicable to the rent you paid in India, not abroad.
• If you have your own house in the town or city where you are currently working or doing business, you cannot claim tax benefits.
• Those individuals living with their parents in their own parents' house under section 80GG cannot claim tax benefits.

These are certain cases where an individual is not eligible to claim tax benefits under section 80GG. Moving further, let's know the eligible deduction amount under this section.

Eligible Amount of Deduction Under 80GG

Under section 80GG of the Income Tax Act, the deduction amount among the following will be the lowest:

• The maximum tax deduction that can be claimed under this section is INR 2,000 per month or INR 60,000 yearly.
• 25% of the adjusted total income
• Paid rent of over 10% of the total income in a financial year

Note: Here, the adjusted total income means the total income of an individual, excluding short-term, long-term capital gains under section 111A and other tax deductions like Section 80C and 80U. Additionally, the term total income refers to the income earned by the taxpayer from all sources, such as business, salary, and more. Apart from this, income for foreign companies and non-resident Indians is taxed at a special rate of tax, such as incomes u/s 115A, 115AB, 115AC, or 115AD.

This is the eligible amount you can claim under section 80GG of the Income Tax Act. Among the three, whichever is less, you will receive that amount. Now, moving further, let's know the calculation of tax deduction under this section. 

Calculation of Deduction Under Section 80GG

As mentioned, the amount of deduction under section 80GG is done on the basis of the above-stated amounts, and among the three, whichever is less is the amount that is deducted. Confused? Let's understand it with an example. Suppose you are Neha, who lives in a rented property in Mumbai and has an adjusted total income of INR 5,00,000 per annum. Every month you pay Rs. 15,000 rent. So, your yearly rental income is Rs. 1,80,000. Now, according to the above-stated criteria, the three possibilities are as follows:

• INR 60,000 yearly
• 25% of INR 5,00,000 = INR 1,25,000
• Rs. 1,80,000 - (10% of INR 5,00,000) = Rs. 1,30,000

Here, the lowest amount is Rs. 60,000. So, under section 80GG of the Income Tax Act, you can claim a tax benefit and get a deduction of Rs. 60,000 per year on your total income for the paid rent.

This is how the calculation of tax deduction is done under section 80GG. Moving ahead, let's know the process to claim the tax benefit under this section.

Step-by-Step Process to Claim 80GG for NRIs & Indians

Follow the steps below to claim tax deduction under section 80GG of the Income Tax Act:

• Pay Rent: Certify that you are monthly or yearly paying your rent for your accommodation. In addition, the payments you are making are made to a legitimate landlord.
• File Form 10BA: To claim the tax benefits under section 80GG of the Income Tax Act, you should first fill out Form 10BA along with your ITR. As stated above, this form works as proof stating that you do not hold any self-occupied property and details related to the rent paid and accommodation property.
• Provide Rent Details: While filling out Form 10BA, you need to mention the requested details, such as the amount you paid as rent, the name of the landlord, and the address of the property where you are currently living.
• Provide Proof of Your Paid Rent: Although the income tax officials, while you file for ITR, did not ask for documents however it is vital to maintain proof of your paid rent. To do so, keep the receipts of your paid rent safely or have a copy of your bank statements.
• File Your Tax Return: Once you're done with all the documentation, file your ITR and under section 80GG of the Income Tax Act, claim the eligible tax deduction.

These are the steps that you need to follow when you claim tax deduction under section 80GG of the Income Tax Act. Moving further, let's know how to file Form 10BA.

How to File Form 10BA?

As stated above, Form 10BA is the declaration that you need to fill out when claiming tax benefits under section 80GG of the Income Tax Act. It serves as proof that you live in a rented house and do not have any self-occupied property in that place. Since this form needs to be filled out while claiming tax deduction, let's know how to fill out this form online.

• Visit the official website of the Income Tax Department of the Indian government and, using your credentials, log in to the site.
• Once you log in to the site, click on the 'e-file' tab and from there select 'income tax forms.' From the several options, look for Form 10BA.
• Then select the accounting year for which you are filing Form 10BA and click on the 'continue' option. Now, on the next page, click on the 'let's get started' option.
• For each section, mention the details. Click on the details of the house property and mention the requested information, such as the name and address of the landlord, address of the property rented, details of the rent paid, etc., and save the information.
• Lastly, click on the declaration> choose the check box and click on save.
• Move further for e-verification> choose e-verification mode and submit. Your Form 10BA will be filled and successfully e-verified.

This is how you can fill out Form 10BA online using the income tax website. Furthermore, let's know the documents that you need to submit when claiming tax deduction under section 80GG.

Documents Required for Claiming Deduction Under Section 80GG?

Under section 80GG of the Income Tax Act, to claim tax deduction on the paid rent when you did not get house rent allowance (HRA), you need to submit the following documents:

• Rent Agreement: If you have a lease or rent agreement signed by your landlord by your side, it is advisable to have a copy of it. While claiming the tax deduction, it is not mandatory to submit it, but you can use it as supporting proof in case the tax officials ask you.
• Rent Receipt: You should have the receipt for the rent you paid during the fiscal year. The rent receipt should showcase information such as the amount of paid rent, the name and address of the landlord, the rent paid period, and, if applicable, a revenue stamp. For every month in which you paid rent, you should have a rent receipt.
• Declaration in Form 10BA: Fill out Form 10BA if the annual amount of the paid rent is more than INR 1,00,000. The form works as a declaration to claim tax deduction on the paid rent under section 80GG.
• PAN Card of Landlord: If your annual rent is more than INR 1,00,000, you need to submit a copy of the PAN card of your landlord. In such cases, it is vital to provide the PAN card of the landlord.
• Other Supporting Documents: While it is not compulsory to provide other supporting documents. However, it is advisable to keep other supporting papers, such as canceled cheque or bank statements, by your side to show the payments of rent made to the landlord.

These are some of the documents that you need to submit when claiming tax deduction under section 80GG. Moving ahead, let's know the common mistakes you can avoid when claiming tax benefits under this section.

Common Mistakes to Avoid While Claiming Section 80GG

While claiming tax deduction under section 80GG, avoid making the following mistakes:

• Incorrect Rent Payment Calculation: Certify that you have calculated the paid rent correctly, including any other charges like utilities and maintenance. Know that the deduction is only provided on the actual paid rent.
• Failure to File Form 10BA: One of the most common mistakes people often make is not submitting Form 10BA while filing ITR. Certify that Form 10BA is filed to avoid any rejection of your tax claim.
• Rent Payments Not Supported by Proof: Even though it is not compulsory while filing an income tax return to submit the documents, but have a record of all your rent payments. So that if the tax officials ask, you can provide them with that.
• Claiming More Than the Allowed Deduction: Under section 80GG of the Income Tax Act, 1961, you can claim only Rs. 5000 per month deduction or the lesser amount of the mentioned conditions. One cannot claim a tax deduction for more than that amount.
• Eligibility Verification: Certify that you fulfill the eligibility criteria mentioned under section 80GG of the Income Tax Act so that you can claim the tax benefits. Additionally, if you receive HRA, you cannot claim tax benefits under this section.

These are some of the mistakes that you should avoid while applying for tax deduction under section 80GG.

Final Thoughts

For individuals who pay rent and do not receive any house rent allowance (HRA), Section 80GG of the Income Tax Act is a helpful provision. Using this section, they can claim tax deductions on the paid rent, reducing their taxable earning. By having an understanding of this section, its eligibility criteria, claiming procedure, and calculation method, one can claim tax benefits. Here, the complete blog was on section 80GG and how Indian residents and NRIs can claim tax deduction on their rent paid using this section. Are you also a self-employed person seeking tax deductions or options available to decrease your tax burden? If yes, to reduce your tax liability, you can claim a tax deduction under this section. Also, if you face issues, no need to worry. Simply contact Savetaxs and shorten your tax journey. Our professionals can solve any of your tax-related queries and, from tax planning to filing taxes, provide you with assistance.