House Rent Allowance & Section 80GG

Tax Exemptions/Deductions for House Rent Allowance (HRA) and Section 80GG

In case you are in receipt of House Rent Allowance (HRA) from your employer, you may avail exemption from the same while filing your ITR. In case you are not in receipt of HRA and you are paying rent, then you may claim tax deduction under section 80GG of IT Act, 1961 subject to certain deductions.

Below are the important provisions regarding HRA and section 80GG -

[A] HRA – In respect of HRA, the least of the following 3 is exempt from tax u/s 10(13A):

  • 40% salary (50% in case of a metropolitan city);
  • Actual HRA received from employer during the period the rented house is occupied by the employee;
  • The excess of rent paid over 10 per cent of salary.

Note: Salary for the purpose of HRA means – Basic + DA (only if forming part of salary for retirement benefits) + any fixed % commission on sales turnover.

Read: HRA Calculation and Exemption Limit

[B] Section 80GG – Deduction for Rent Paid

In case you are not in receipt of HRA and Rent free accommodation (RFA) and you/your spouse/children do not own any residential property either at the place of your work or residence, or if your spouse/children own a residential property at any other place (but not the assessee), then you can claim deduction for the rent paid as per sec 80GG under Income Tax Act, 1961. The same is explained below:

Deduction (under sec 80GG) allowed is least of the 3 options below:

  • Rs 2000 per month;
  • Excess of rent paid over 10% of Adjusted total income
  • 25% of Adjusted total income

where, Adjusted total income:

Gross total income
LESS
LTCG (if already included in Gross Total income)
STCG (if already included in Gross Total income)
All deductions other than the deduction under Section 80GG

Important Points regarding section 80GG:

  • No deduction if 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 need to be paying rent, and for your own accommodation, not for your parents’ accommodation.
  • You need to declare that you are paying the rent. This has to be done by filling out and filing from 10-BA.
  • The house is to be situated within specified municipal areas. However, all major cities are a part of the specified municipal areas.

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