Section 80GG is one of the lesser-known sections which can be used by taxpayers to lessen their tax burden by claiming tax exemption for rent paid (in case HRA is not part of salary). This section can be used by being either salaried/pensioner or self-employed taxpayers.

Conditions for Claiming Tax benefit u/s 80GG for Rent Paid

You can claim a tax deduction for rent paid u/s 80GG at the time of filing a tax return only if following conditions are satisfied:
1.                 The deduction is available only for individuals & HUFs
2.                 For a salaried person to be eligible for tax benefit u/s 80GG, he should not receive HRA from his employer.
3.                 Pensioners or Self-employed do not have any HRA and so they can take advantage of 80GG
4.                 No one in the family including spouse, minor children, self or HUF he is a member of should own a house in the city you are employed or carrying your business.
5.                 If you own a house in the different city, you cannot show it as self-occupied. You have to consider it as deemed to let out – i.e. – you have to show rental income whether or not it’s actually put on rent.
Additionally, you need to fill form no 10BA to claim tax benefit u/s 80GG. This form is NOT to be submitted anywhere but kept with you for records to show to I-T department in case of scrutiny.

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The deduction allowed u/s 80GG:

The House Rent deduction is minimum of the below 3 numbers:
1.                 Rs. 5,000 per month [increased from Rs 2,000 to Rs 5,000 in Budget 2016]
2.                 25% of annual income
3.                 (Rent Paid – 10% of Annual Income)
Here Annual income refers to
§                    Gross Total Income
Minus
§                    Long Term Capital Gain,
§                    Short Term Capital Gain  of 10% category,
§                    Deductions under sections 80C to 80U except for section 80GG and income of foreign company

Assume that Amit has the annual income of Rs 5 Lakhs and he pays rent of Rs 10,000 per month. Here is his tax benefit for rent paid.
1.                 Rs. 5,000 per month – Rs 60,000
2.                 25% of annual income – Rs 1,25,000

3.                  (Rent Paid – 10% of Annual Income) – Rs 70,000 (1,20,000 – 50,000)