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Sunday, February 09, 2014

HRA and Rent Benefit under Section 80 GG

In the last post, we studied about the tax implications of HRA under Section 10. But this section is applicable only if the individual qualifies for HRA as per the company policies. But what if your employer does not give you HRA or you are self employed? In that case, Section 10 is not applicable for you. You can still save taxes using Section 80GG of the IT Act.

Conditions of applicability for Section 80 GG
For you to be applicable to save rent under Section 80GG, the following conditions must be satisfied:
  • The Individual has not been in receipt of any House Rent Allowance from his employer specifically granted to him which qualifies for exemption under section 10
  • You should not own any residential house at any place of your employment or business,
  • You should not own a house at any other place which is claimed as self-occupied house. So, if you work in Mumbai and claimed tax benefits for a self-occupied house in Pune, you will not qualify for deduction under Section 80 GG
  • The Individual files the declaration in Form No. 10BA.

Rent Deduction Calculation under Section 80GG
The amount which you can claim under Section 80 GG will be the least amount of the following options.
  • Rent paid minus 10 percent the adjusted total income.
  • Rs 2,000 per month.
  • 25 percent of the adjusted total income. 

What is Adjusted Total Income?
Adjusted total income here means your total income after allowing all deductions under Section 80, apart form Section 80 GG. But, it includes short-term capital gain tax and long-term capital gain tax

Your adjusted total income : Rs 10 lakh
Rent paid : Rs 10,000 a month, that is Rs 1.20 lakh for a year.

Option 1:
Subtract 10 percent of your adjusted total income from the rent paid
Rs 120,000 – 10% of 10 lakh = Rs 20,000.
Option 2:
Here you pay Rs 2,000 per month, that is Rs 24,000 per year.
Option 3:
25 percent of adjusted total income, that is Rs 2.5 lakh.

So, in this case, you will be able to claim a deduction of Rs 20,000 as per Section 80 GG, since that’s the least amount among the three options.

It has been generally observed that most people who qualify under section 80GG, usually fall under the Rs.2000 per month deduction amount category. To claim this deduction you will need to fill the form 10 BA. 


Manoj Arora
Freedom can buy you what money cannot !!

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