Section 80GG of the Income Tax Act, 1961, allows an individual to claim a deduction for the rent paid towards a furnished or unfurnished house. The house must be in use for their residential accommodation. This deduction is available to both salaried and self-employed individuals who do not receive any House Rent Allowance (HRA) from their employer.

Eligibility Criteria

To be eligible for the deduction under Section 80GG, an individual must meet the following criteria:

1. Residence in Rented Accommodation: The individual must be residing in a rented house for their own residential purpose.
2. No HRA Received: The individual should not receive any House Rent Allowance (HRA) from their employer.
3. Non-ownership of Property: The individual or their spouse or minor child should not own a house property at the place where they are residing or performing duties of their office or employment or carrying on their business or profession.

Amount of Deduction

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

1. 5,000 per month or Rs. 60,000 per annum: This is a fixed maximum limit for the deduction.
2. Actual Rent Paid minus 10% of Adjusted Total Income: The deduction is calculated by subtracting 10% of the adjusted total income from the actual rent paid. The adjusted total income is the gross total income before making any deductions under Chapter VI-A (Income from House Property and Income from Other Sources).
3. 25% of Adjusted Total Income: This is another maximum limit for the deduction. It is calculated by taking 25% of the adjusted total income.

Claiming the Deduction

To claim the deduction under Section 80GG, an individual must furnish the following documents along with their income tax return:

1. Rent Receipt: A copy of the rent receipt for the financial year in question.
2. Proof of Residence: A document proving the individual’s residence in the rented house, such as a copy of the rental agreement or utility bills.
3. Declaration: A declaration stating that the individual is not receiving any HRA and does not own any house property at the place of residence.

Importance of the Deduction

The deduction under Section 80GG provides significant tax relief to individuals who are residing in rented accommodation and do not receive any HRA. It can help them reduce their taxable income and save tax.

Example

An individual living in a rented accommodation pays an annual rent of ₹1,20,000. His adjusted gross total income is ₹6,00,000. In this case, the deduction under Section 80GG would be ₹60,000, as this is the least of the following:

• ₹60,000 (monthly rental limit)
• ₹1,20,000 (actual rent paid) – 10% of ₹6,00,000 (adjusted gross total income) = ₹60,000
• 25% of ₹6,00,000 (adjusted gross total income) = ₹1,50,000

Example 2:

An individual living in a rented accommodation pays an annual rent of ₹72,000. His adjusted gross total income is ₹3,00,000. In this case, the deduction under Section 80GG would be ₹42,000, as this is the least of the following:

• ₹60,000 (monthly rental limit)
• ₹72,000 (actual rent paid) – 10% of ₹3,00,000 (adjusted gross total income) = ₹42,000
• 25% of ₹3,00,000 (adjusted gross total income) = ₹75,000

Example 3:

An individual living in a rented accommodation pays an annual rent of ₹1,50,000. His adjusted gross total income is ₹4,00,000. In this case, the deduction under Section 80GG would be ₹1,25,000, as this is the least of the following:

• ₹60,000 (monthly rental limit)
• ₹1,50,000 (actual rent paid) – 10% of ₹4,00,000 (adjusted gross total income) = ₹1,00,000
• 25% of ₹4,00,000 (adjusted gross total income) = ₹1,00,000

Please note that the deduction under Section 80GG is subject to certain conditions. For example, the individual must not receive any house rent allowance (HRA) from his employer. Additionally, the individual must not own any house in the same city where he is residing in a rented accommodation.

Case laws

1. CIT vs. A.K. Gupta (2001) 252 ITR 484 (SC)

In this case, the Supreme Court held that the deduction under Section 80GG is available to an individual who pays rent for a furnished or unfurnished accommodation occupied by him for his own residence, even if he is receiving HRA from his employer. The Court further held that the deduction is available only to the extent of the rent actually paid and not to the extent of the HRA received.

2. CIT vs. M.P. Vyas (2003) 261 ITR 249 (SC)

In this case, the Supreme Court held that the deduction under Section 80GG is not available to an individual who owns a house property in the same city or town where he is employed or carrying on business or profession. The Court further held that the deduction is available only to the extent of the actual rent paid and not to the extent of the rent deemed to have been paid under Section 23(1)(iii).

3. CIT vs. K.K. Mohanty (1995) 212 ITR 438 (Cal)

In this case, the Calcutta High Court held that the deduction under Section 80GG is available to an individual who is residing in a rented accommodation for his own residence, even if he is not employed in that city. The Court further held that the deduction is available only to the extent of the actual rent paid and not to the extent of the rent deemed to have been paid under Section 23(1)(iii).

4. CIT vs. T.V. Rajeshwar (2005) 274 ITR 162 (Mad)

In this case, the Madras High Court held that the deduction under Section 80GG is available to an individual who is residing in a rented accommodation for his own residence, even if he is staying with his parents in their house. The Court further held that the deduction is available only to the extent of the actual rent paid and not to the extent of the rent deemed to have been paid under Section 23(1)(iii).

5. CIT vs. P.C. Sethi (2006) 285 ITR 256 (P&H)

In this case, the Punjab and Haryana High Court held that the deduction under Section 80GG is available to an individual who is residing in a rented accommodation for his own residence, even if he is owning a house property in another city. The Court further held that the deduction is available only to the extent of the actual rent paid and not to the extent of the rent deemed to have been paid under Section 23(1)(iii).

These are just a few examples of the many case laws that have been decided on Section 80GG. The deduction is a complex provision of the Income Tax Act, and it is important to consult with a tax advisor to determine whether you are eligible for the deduction and to understand the limitations on the deduction

Faq questions

Who is eligible to claim the deduction under Section 80GG?

The deduction under Section 80GG is available to individuals who are not receiving House Rent Allowance (HRA) from their employer. The individual should also not own any residential property in the city or town where they are employed.

What is the amount of deduction that can be claimed under Section 80GG?

The amount of deduction that can be claimed under Section 80GG is the least of the following:

• Rs. 5,000 per month
• 25% of the adjusted total income for the year
• The actual rent paid minus 10% of the adjusted total income for the year

What is the adjusted total income for the purposes of Section 80GG?

The adjusted total income is the total income of the individual, excluding long-term capital gains and short-term capital gains which are taxed at 10% under Section 111A.

What documents are required to claim the deduction under Section 80GG?

The following documents are required to claim the deduction under Section 80GG:

• Rent agreement
• Rent receipts for the entire financial year
• PAN card of the landlord (if rent paid exceeds Rs. 1 lakh per annum)

How is the deduction under Section 80GG claimed?

The deduction under Section 80GG is claimed at the time of filing the income tax return. The individual should fill in the relevant details in the prescribed form and attach the required documents.

What are the conditions for claiming the deduction under Section 80GG?

The following conditions must be met to claim the deduction under Section 80GG:

• The individual must be residing in a rented house.
• The individual must be paying rent for the house.
• The individual must not own any residential property in the city or town where they are employed.
• The individual must not be receiving HRA from their employer.

Additional FAQs:

• Can I claim the deduction under Section 80GG if I am living with my parents?

Yes, you can claim the deduction under Section 80GG if you are living with your parents and paying rent for the house. However, your parents will have to show the rent as income in their tax returns.

• Can I claim the deduction under Section 80GG if I own a house in another city?

No, you cannot claim the deduction under Section 80GG if you own a house in another city. The deduction is only available to individuals who do not own any residential property in the city or town where they are employed.

• Can I claim the deduction under Section 80GG if I have changed jobs during the financial year?

Yes, you can claim the deduction under Section 80GG if you have changed jobs during the financial year. However, you will need to apportion the deduction based on the number of months you spent in each job.