Claiming Rent Tax Benefits: HRA Exemption vs. Section 80GG Deduction

Self-employed individuals and salaried employees not receiving House Rent Allowance (HRA) can claim tax benefits for rent paid under Section 80GG of the Income Tax Act.

This deduction, capped at Rs 60,000 annually, is available only under the old tax regime and requires filing Form 10BA.

HRA exemption and Section 80GG are mutually exclusive.

Several non-salaried individuals, such as self-employed professionals, freelancers, and business owners who pay substantial rent every month, often question whether they can claim tax benefits like the house rent allowance (HRA) exemption available to salaried employees.

The answer is no. Non-salaried individuals cannot claim a house rent allowance (HRA) exemption because HRA is a salary-linked exemption available only to employees who receive it as part of their compensation package.

“However, taxpayers who pay rent for residential accommodation but do not receive HRA can claim a deduction under Section 80GG, subject to prescribed conditions. This deduction is available to self-employed individuals and salaried taxpayers not receiving HRA,” says Sandeep Bhalla, Partner, Dhruva Advisors.

It is important to note that Section 80GG is available only under the old tax regime and cannot be claimed by taxpayers opting for the new tax regime.

Section 80GG vs HRA exemption: what is the key difference?

Although both provisions help reduce the tax burden on rent paid for residential accommodation, they cater to different categories of taxpayers.

Section 80GG provides a deduction for rent paid by individuals not receiving HRA, while the standard HRA exemption under Section 10(13A) is an exemption available only to salaried employees who receive HRA as part of their salary.

“The HRA exemption is calculated based on salary, rent paid, and city of residence and generally offers a higher tax benefit,” says Ashish Mehta, Partner at Khaitan & Co.

In contrast, Section 80GG is subject to a prescribed ceiling (of Rs 60,000 per year) and is available only if the taxpayer, spouse, minor child, or HUF does not own residential accommodation at the place where the taxpayer ordinarily resides or performs employment/business, he adds.

How deduction under Section 80GG is calculated

For eligible taxpayers, the deduction under Section 80GG is restricted to the lowest of the following three amounts:

Rs 5,000 per month (Rs 60,000 annually);

25% of the taxpayer’s adjusted total income;

Actual rent paid minus 10% of adjusted total income.

The lowest of the above three amounts is allowed as a deduction. Accordingly, the maximum deduction that can be claimed under Section 80GG is ₹60,000 per annum, subject to satisfaction of the prescribed conditions, as per Bhalla.

What is Form 10BA and when is it required?

Form 10BA is a mandatory declaration that taxpayers must file to claim the deduction for rent paid under Section 80GG of the Income Tax Act.

“Through this form, the taxpayer confirms that the prescribed conditions for claiming the deduction are satisfied, including that neither the taxpayer nor their spouse, minor child, or HUF owns a residential property at the place where they ordinarily reside or carry on employment or business,” says Bhalla.

Apart from filing Form 10BA, taxpayers should retain supporting documents. These include:

Rent receipts

Rent or lease agreement

Proof of rent payment

Landlord’s PAN, where applicable

According to Bhalla, maintaining these documents is important in case the tax authorities seek verification of the claim.

Can you claim both HRA exemption and Section 80GG deduction?

No. HRA exemption and deduction under Section 80GG are mutually exclusive.

“A taxpayer who receives HRA from an employer and claims exemption in respect of such HRA cannot simultaneously claim a deduction under Section 80GG for the same period,” explains Bhalla.

Section 80GG is specifically intended for taxpayers who do not receive HRA. Therefore, taxpayers should determine their eligibility based on their employment status and salary structure before claiming either benefit, he adds.

It is also important to remember that both the HRA exemption and the deduction under Section 80GG are available only under the old tax regime.

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