Section 80GG of income tax act, 1961 is applicable to a self employed person, businessman and even to a salaried person for the expenses that they incur towards house rent.
If you are not receiving house rent allowance from your employer or your salary does not include house rent allowance then you are eligible to claim tax deduction under section 80GG for your house rent expense that you incurred for your living during the previous year.
Limit of Tax Deduction for House Rent paid – Section 80GG
Tax deduction under section 80GG of income tax act, 1961 shall be the minimum of the following amounts;
- Rent paid in excess of 10% of adjusted total income
- 25% of adjusted total income
- 5, 000 rupees per month
Budget 2016 has increase the limit from Rs. 2000 to Rs 5000. This means, for assessment year 2017-18 limit should be taken as 5000 rupees per month. If you are calculating tax liability for assessment year 2016-17, the limit should be taken as 2000 rupees per month.
From assessment year 2017-18 onward, you can claim deduction up to Rs 60, 000 (5000*12) under section 80GG for the rent paid instead of the earlier limit of Rs 24, 000 (2000*12).
Conditions to Section 80GG deduction
To claim tax deduction under section 80GG , you need to fulfill following conditions;
- You should not own a house in the place in which you live, or work or carry on business
- Your spouse, child including minor child, Hindu undivided family should not own any residential accommodation in that place
- You must file a declaration in form no 10BA by confirming that you paid the rent and fulfill the conditions to claim deduction.
- If you are a salary person then you should not be in receipt of house rent allowance
- You must reside in that house to claim exemption. Any other person can stay with you for the purpose of claiming this deduction under section 80GG.
If you are owning a house in some other city and use that house for your own resident and not given for rent then you can not claim deduction under section 80GG even though you stay in a rented house and pay rent at your work location in a different city.
Adjusted Total Income for Section 80GG tax deduction
For the purpose of calculating tax deduction under section 80GG, adjusted total income means the Gross total income as reduced by:
- Long term capital gain if any which has been included in gross total income
- Short term capital gains
- All deductions permissible under section 80C to 80U excepting deduction under section 80GG
- Income referred to in section 115A, 115AB, 115AC or 115AD (these sections referred to NRIs and foreign companies).