Rent is often one of the biggest expenses for individuals living in rented accommodations. While salaried employees with a House Rent Allowance (HRA) component in their salary can claim tax benefits under Section 10(13A) of the Income Tax Act, others without HRA aren’t left out entirely. The Income Tax Act provides an alternative way to claim deductions for rent paid, even if you don’t receive HRA.

Here’s a detailed guide on how to claim tax deductions for rent without HRA:

Section 80GG: The Alternative for Non-HRA Individuals

“Section 80GG of the Income Tax Act allows individuals to claim a tax deduction on rent paid, provided certain conditions are met,” informs CA Ruchika Bhagat, MD, Neeraj Bhagat & Co.

This provision is particularly beneficial for:

  • Self-employed individuals.
  • Salaried employees who do not receive HRA as part of their salary structure.

Also Read: Top 5 things to do while submitting investment proof to your employer

Eligibility Criteria for Claiming Deduction Under Section 80GG

To claim a deduction under Section 80GG, you must satisfy the following conditions:

  1. No HRA Received
    You must not receive HRA as a part of your salary.
  2. Residential Purpose
    “The rent should be paid for a house you live in. This deduction cannot be claimed for rent paid for commercial properties or other residential properties where you do not reside,” says Bhagat.
  3. No Self-Owned Accommodation
    Neither you nor your spouse or minor child should own residential property at the place where you ordinarily reside or work.
  4. No Claiming on Self-Occupied Property
    If you own property elsewhere and claim it as self-occupied, you cannot claim Section 80GG for rent paid.
  5. Furnishing of Form 10BA
    You need to submit Form 10BA to declare that you are not claiming the benefit of HRA and fulfill all the conditions under Section 80GG.
  6. Employee should not have property in his name, in the name of his wife, in the name of minor child or in the name of HUF to whom he belongs.

How Much Deduction Can You Claim?

The deduction under Section 80GG is the least of the following three amounts:

  1. Rs 5,000 per month (Rs 60,000 annually).
  2. 25% of your total adjusted gross income (gross total income minus deductions under Sections 80C to 80U, excluding Section 80GG).
  3. Actual rent paid minus 10% of your adjusted gross income.

Steps to Claim the Deduction

  1. Calculate the Deduction
    Determine the least amount among the three calculations specified above.
  2. Fill Form 10BA
    Submit Form 10BA on the Income Tax e-filing portal. This form is a declaration stating that you meet the conditions to claim the deduction.
  3. Maintain Proof of Rent Payment
    Keep rent receipts, rental agreements, or bank statements showing rent payment as evidence in case of scrutiny by the tax authorities.
  4. File Your Income Tax Return
    While filing your ITR, include the deduction under Section 80GG. Mention the amount in the relevant section of the form.

Practical Example

Scenario

  • Annual income (adjusted gross income): Rs 6,00,000
  • Rent paid: Rs 8,000 per month
  • Total rent paid annually: Rs 96,000

Calculation

  1. Rs 5,000 per month = Rs 60,000 annually
  2. 25% of Rs 6,00,000 = Rs 1,50,000
  3. Actual rent paid – 10% of income = Rs 96,000 – Rs 60,000 = Rs 36,000

Deduction Under Section 80GG

The least of the above: Rs 36,000.

Key Points to Remember

  • Section 80GG is aimed at providing relief to those paying rent without the HRA component.
  • Ensure you meet all conditions and maintain necessary documentation.
  • The maximum deduction is capped at Rs 60,000 per year.

Conclusion

Claiming a tax deduction for rent without receiving HRA is straightforward if you fulfill the criteria under Section 80GG. “By utilizing this provision, you can reduce your taxable income and save on taxes, easing the burden of living in rented accommodations. Always stay compliant with the rules and consult a tax advisor, if needed, to optimize your tax savings,” suggests Bhagat.