Highlights

• Non-salaried individuals can claim rent-related tax benefits through Section 80GG.
• The deduction is available only under the old tax regime.
• Filing Form 10BA is mandatory to claim the benefit.

House Rent Allowance (HRA) is commonly associated with salaried employees. However, individuals who do not receive HRA, including self-employed professionals, freelancers, consultants, and business owners, may still be eligible for a tax deduction on rent paid for residential accommodation.

The Income Tax Act provides this benefit through Section 80GG, allowing eligible taxpayers to reduce their taxable income if certain conditions are satisfied. The provision is particularly relevant for taxpayers who live in rented accommodation but do not receive HRA as part of their compensation structure.

Source: Analysis by Kalkine 

Who Can Claim Deduction Under Section 80GG?

The deduction is available to individuals who pay rent for their residence and do not receive HRA during the financial year.

To qualify, the taxpayer must satisfy several conditions:

• The taxpayer should not receive HRA from an employer.
• Rent must be paid for residential accommodation occupied by the taxpayer.
• The taxpayer, spouse, minor child, or Hindu Undivided Family (HUF) should not own a residential property in the city where the taxpayer ordinarily resides or works.
• Form 10BA must be filed before or along with the income tax return.
• The deduction is available only under the old tax regime.

Understanding the Deduction Calculation

Section 80GG does not allow taxpayers to claim the entire rent paid. Instead, the deduction is restricted to the lowest of the following three amounts:

• Rs 5,000 per month or Rs 60,000 annually.
• 25 percent of total income before allowing the deduction.
• Actual rent paid minus 10 percent of total income.

The lowest figure among these three calculations becomes the eligible deduction under Section 80GG.

Why Form 10BA Is Important

One of the most important requirements for claiming Section 80GG is filing Form 10BA.

This declaration confirms that the taxpayer meets the prescribed eligibility conditions, including the requirement that neither the taxpayer nor specified family members own a residential property at the place of residence or work.

Failure to submit Form 10BA may result in the deduction being disallowed during tax processing.

Documents Taxpayers Should Keep Ready

Tax authorities may seek supporting evidence for the deduction claim. Taxpayers should therefore retain proper documentation related to tenancy and rent payments.

Important records include:

• Rent agreement or lease deed.
• Rent receipts.
• Proof of rent payment through banking channels where applicable.
• Landlord's PAN if annual rent exceeds Rs 1 lakh.
• Copy of Form 10BA filed with the return.

Common Errors While Claiming Section 80GG

Tax professionals often observe mistakes that can lead to deduction rejection or scrutiny.

Some common issues include:

• Failure to file Form 10BA.
• Claiming the entire rent paid instead of applying the prescribed limits.
• Incorrect calculation of adjusted total income.
• Lack of supporting rent documentation.
• Inadequate proof of rent payments.

Difference Between HRA and Section 80GG

Although both provisions provide relief for rent paid, they operate differently.

HRA exemption is available only to salaried employees receiving HRA as part of their salary package. The exemption amount depends on salary, rent paid, HRA received, and city of residence.

Section 80GG, on the other hand, is available to individuals who do not receive HRA and is subject to a statutory maximum deduction of Rs 60,000 annually.

Key Risks to Consider

• Missing Form 10BA can invalidate the deduction claim.
• Incorrect deduction calculations may trigger tax notices.
• Lack of rent payment proof can weaken the claim.
• New tax regime taxpayers cannot claim Section 80GG.

Summary

Non-salaried taxpayers, freelancers, professionals, and individuals not receiving HRA may claim rent-related tax benefits under Section 80GG. The deduction is available only under the old tax regime and is subject to prescribed limits. Filing Form 10BA and maintaining proper rent documentation are essential requirements. Understanding eligibility rules and calculation methods can help taxpayers avoid errors while filing their income tax returns.

FAQs

Q: Can a self-employed person claim rent deduction under Section 80GG?

A: Yes, self-employed individuals can claim the deduction if they meet prescribed eligibility conditions and file Form 10BA.

Q: What is the maximum deduction available under Section 80GG?

A: The deduction is restricted to the lowest of prescribed limits, including Rs 60,000 annually.

Q: Can taxpayers under the new tax regime claim Section 80GG?

A: No, the deduction under Section 80GG is available only to taxpayers opting for the old tax regime.