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Section 80GG – Deductions is respect of rents paid

09 Dec

Section 80GG allows the employee to a deduction in respect of house rent paid by him for his own residence. Such deduction is permissible subject to the following conditions :-

(a)  the employee has not been in receipt of any House Rent Allowance specifically granted to him which qualifies for exemption under section 10(13A) of the Act;

(b)  the employee files the declaration in Form No. 10BA. (Annexure VIII)

(c)  He will be entitled to a deduction in respect of house rent paid by him in excess of 10% of his total income, subject to a ceiling of 25% thereof or Rs. 2,000/- per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG.

(d)  The employee does not own:

(i)  any residential accommodation himself or by his spouse or minor child or where such employee is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession; or

(ii)  at any other place, any residential accommodation being accommodation in the occupation of the employee, the value of which is to be determined under Section 23(2)(a) or Section 23(4)(a) as the case may be.

The Drawing and Disbursing Authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the employee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.

Meaning:

Do you pay rent but don’t get a house rent allowance (HRA)? Don’t think you can not get any income tax benefit. You can qualify to save tax under section 80GG of the Income Tax (IT) Act if you satisfy certain conditions. Read on.

Salaried people who pay rent and get a house rent allowance (HRA) can claim exemption of that amount in most cases.(To know more, please read “Income Tax (IT) treatment of House Rent Allowance (HRA)”)

 But what if you are not salaried? What if you are a businessman paying rent? Or, what if you are salaried but do not get any HRA? Can you get any income tax benefit?

Yes, you can. You can claim deduction of the rent paid if you satisfy certain conditions.

Who can claim deduction?

Any individual can claim the deduction u/s 80GG. Irrespective of whether you are a salaried individual, or a business person, you can claim deduction under Sec 80GG.

Of course, you need to be paying rent, and for your own accommodation.

Thus, if you are paying rent for a house where your parents live, you can not claim deduction u/s 80GG. Similarly, if you are staying in a house but your spouse is paying the rent, you can not claim any deduction.

You can claim deduction for either furnished or unfurnished accommodation.

Restrictions on claiming the deduction

There are certain restrictions in this section. You can not claim deduction u/s 80GG if:

  • You receive HRA from your employer (or you received HRA from your current or previous employer at any time in the year)
  • You or your spouse or your minor child owns a house at the place (city / town / village) where you normally stay, work or conduct business
  • You are a member of a Hindu Undivided Family (HUF), and the HUF owns a house at the place where you normally stay, work or conduct business
  • You own a house at any other place and claim concessions of self-occupied house property for it (For example, tax benefit of a home loan for the house)

Amount of deduction under section 80GG

So, how much can you claim as deductible u/s 80GG?

The amount allowed as deduction is the minimum of the following:

  • Rent / lease amount paid less 10% of your total income
  • Rs. 2,000 per month
  • 25% of your total income

Here, Total Income means:

Your Gross Total Income

Less long term capital gain, and short term capital gain that would be charged at a concessional tax rate (like STCG from sale of shares)

Less all deductions other than the deduction under Section 80GG

Other Conditions

Form 10BA

You need to declare that you are paying the rent. This has to be done by filling up and filing from 10-BA.

City / Municipality

The deduction u/s 80GG is available only if the house is situated within specified municipal areas. However, all major cities are a part of the specified municipal areas.

Example

Let’s assume the following (amounts per annum):

Basic: Rs. 4,00,000
DA: Rs. 50,000

You pay a rent of Rs. 5,000 per month.

Here, the deduction that you can claim is the minimum of:

1. Rent / lease amount paid less 10% of your total income:

(Rs. 5,000 * 12) – 10% of (Rs. 4,00,000 + Rs. 50,000)
= Rs. 60,000 – Rs. 45,000
= Rs. 15,000

2. Rs. 2,000 per month

That is, Rs. 24,000 per year.

3. 25% of your total income

25% of (Rs. 4,00,000 + Rs. 50,000)
= Rs. 1,12,500.

Thus, you would be able to claim a deduction of Rs. 15,000.

 

Ref: http://www.raagvamdatt.com/Deduction-for-rent-paid-section-80GG

http://www.simpletaxindia.net/2012/10/how-to-calculate-tds-tax-on-salary-fy.html#ixzz2EOi4LIun

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Posted by on December 9, 2012 in TDS

 

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