What is the process for claiming deductions for rent paid if HRA is not provided?

Paying a significant portion of your income on rent but not receiving House Rent Allowance (HRA) from your employer? You might think you’re missing out on tax benefits, but there’s a provision just for you. For many salaried professionals and self-employed individuals, rental expenses constitute a major monthly outflow. The good news is that the Indian Income Tax Act provides a specific mechanism for claiming deductions for rent paid, even if HRA is not part of your salary structure. This powerful tool is available under Section 80GG of the Income Tax Act, 1961. This comprehensive guide will detail the complete rent deductions process in India, covering everything from eligibility and calculation to the necessary forms and documentation, ensuring you can turn your rental expenses into a smart tax-saving opportunity.

Understanding Rent Deductions Without HRA: An Overview of Section 80GG

Many taxpayers are familiar with the HRA exemption under Section 10(13A), which is a common component of a salaried person’s compensation package. However, a large segment of the workforce, including self-employed individuals, consultants, and employees in companies that do not offer HRA, are left wondering about their options. This is precisely where Section 80GG comes into play. Unlike HRA, which is an exemption on an allowance received, Section 80GG provides a deduction from your gross total income. This means it directly reduces your taxable income, thereby lowering your overall tax liability. The primary purpose of this section is to provide tax relief to those who incur rental expenses for residential accommodation but do not receive any specific housing allowance. Understanding this provision is the first step toward effectively managing your tax deductions for rent payments in India, especially when you fall into the category of individuals with HRA not provided deductions.

Are You Eligible? Key Rent Deduction Eligibility Criteria in India

Before you proceed with any calculations or form filings, confirming your eligibility is the most crucial step. The Income Tax Department has laid out specific conditions to ensure that the deduction under Section 80GG is claimed only by those it is intended for. Failing to meet even one of these criteria can make your claim invalid, potentially leading to queries from the tax authorities. Therefore, it is essential to carefully review the rent deduction eligibility criteria in India to determine if you qualify for this benefit. The conditions are straightforward and are designed to prevent misuse of the provision.

Who can claim deductions under Section 80GG?

To claim this deduction, you must satisfy all the following conditions:

Individual Assessees Only: The deduction under Section 80GG is exclusively available to individuals. It cannot be claimed by a Hindu Undivided Family (HUF) or any other type of taxpayer.
Salaried or Self-Employed: This provision is open to both salaried employees and self-employed professionals or small business owners. This makes it a versatile tool for claiming rent deductions for salaried individuals as well as entrepreneurs.
No HRA Received: You must not have received any House Rent Allowance (HRA) from your employer at any point during the financial year for which you are claiming the deduction. If you received HRA for even a single month, you are ineligible for the entire year under this section.
No Property Ownership in the City of Residence: You, your spouse, your minor child, or the HUF of which you are a member, should not own any residential property at the location where you currently live and work. This means if you are paying rent in Mumbai, you or your specified family members should not own a house in Mumbai.
Condition for Property Owned Elsewhere: If you do own a residential property in a location other than your city of residence (e.g., you work in Delhi but own a house in Lucknow), you cannot claim the benefit of that property as ‘self-occupied’ if you wish to claim the 80GG deduction. To be eligible, that property must be classified as ‘let-out’ (rented out), and you must understand How to Calculate Tax on Rental Income and include it in your tax return.

How to Calculate Your Rent Deduction Amount

Once you have confirmed your eligibility, the next step is to calculate the exact amount you can claim as a deduction. The calculation under Section 80GG is formula-based, and the amount allowed is the lowest of the three conditions specified in the act. It is vital to compute all three amounts accurately to arrive at the correct deduction figure. Overstating this amount in your tax return can lead to penalties and notices. The calculation involves your rent paid and a specific component of your income known as ‘Adjusted Total Income’.

The Three Conditions for Calculation

The deduction available will be the minimum of the following three amounts:

Fixed Amount: A standard limit of ₹5,000 per month, which translates to ₹60,000 annually.
Percentage of Income: This is calculated as 25% of your ‘Adjusted Total Income’.
Rent Paid vs. Income: This is the amount you get after subtracting 10% of your ‘Adjusted Total Income’ from the actual rent you paid during the year.

What is ‘Adjusted Total Income’?

‘Adjusted Total Income’ is a specific term for this calculation and is not the same as your gross or net income. It is calculated by taking your Gross Total Income and subtracting certain items.

Here is the formula:
Adjusted Total Income = Gross Total Income MINUS (Long-term capital gains + Short-term capital gains taxable under Section 111A + All deductions under Section 80C to 80U, except Section 80GG + Income related to non-residents under Section 115A).

Actionable Example:

Let’s understand this with a simple example. Meet Priya, a freelance graphic designer living in Pune.

Her Gross Total Income for the financial year is ₹8,50,000.
She has a Long-Term Capital Gain of ₹50,000.
She has invested ₹1,50,000 under Section 80C.
She pays an annual rent of ₹1,80,000 (₹15,000 per month).

Step 1: Calculate Priya’s Adjusted Total Income

Adjusted Total Income = ₹8,50,000 (Gross Income) – ₹50,000 (LTCG) – ₹1,50,000 (80C Deduction)
Adjusted Total Income = ₹6,50,000

Step 2: Calculate the three deduction limits

Fixed Amount: ₹60,000
25% of Adjusted Total Income: 25% of ₹6,50,000 = ₹1,62,500
Actual Rent Paid minus 10% of Adjusted Total Income:
- Actual Rent Paid = ₹1,80,000
- 10% of Adjusted Total Income = 10% of ₹6,50,000 = ₹65,000
- Amount = ₹1,80,000 – ₹65,000 = ₹1,15,000

Step 3: Determine the eligible deduction amount

The deduction allowed is the lowest of the three amounts calculated above:

₹60,000
₹1,62,500
₹1,15,000

In Priya’s case, the lowest amount is ₹60,000. Therefore, she can claim a deduction of ₹60,000 under Section 80GG in her income tax return.

The Step-by-Step Guide on How to Claim Rent Deductions in India

Knowing you are eligible and having calculated the correct amount are the preliminary steps. The actual rent deductions process in India involves a mandatory online declaration followed by claiming the amount in your Income Tax Return (ITR). Following these steps meticulously is essential for a successful claim.

Step 1: File Form 10BA Online

Before you can claim the deduction in your ITR, you must file a declaration in Form 10BA. This is a mandatory prerequisite. Form 10BA is an online form where you declare that you satisfy all the eligibility conditions for claiming a deduction under Section 80GG. This form must be filed electronically on the official income tax e-filing portal before you file your ITR.

The information you will need to fill in Form 10BA includes:

Your full Name, Permanent Account Number (PAN), and complete address.
The complete address of the rented property for which you are claiming the deduction.
The total rent amount paid during the financial year.
The name and address of your landlord.
A formal declaration confirming that you meet all the eligibility criteria mentioned earlier (no HRA, no property ownership in the city, etc.).

You can access the form by logging into the official Income Tax India Website and navigating to the e-File section.

Step 2: Claim the Deduction in Your ITR

Once you have successfully filed Form 10BA, the final step is to claim the calculated deduction amount while filing your ITR. In the ITR form, you need to enter the eligible deduction amount (the lowest of the three conditions you calculated) in the appropriate schedule. This deduction falls under the section titled ‘Deductions under Chapter VI-A’. There will be a specific field for Section 80GG where you can input the amount. The ITR utility will automatically verify if you have filed Form 10BA for the same.

Important Note: While you are not required to submit any documents along with your ITR, it is crucial to maintain proper records. You must keep all your rent receipts and a copy of your rental agreement safe. In case of scrutiny or a query from the Income Tax Department, these documents will serve as essential proof to validate your claim. Being aware of Common Mistakes in Income Tax Returns and How to Avoid Them can further safeguard your claim.

Key Benefits and Considerations for Claiming Deductions on Rent Paid

Claiming a deduction under Section 80GG offers significant financial advantages, but it also comes with certain responsibilities and points to remember. Being aware of these aspects ensures that your claim is both beneficial and compliant with tax laws.

Benefits of Claiming Rent Deductions

The benefits of claiming rent deductions in India under Section 80GG are clear and impactful:

Direct Taxable Income Reduction: The deduction amount is subtracted directly from your gross total income, which lowers your net taxable income.
Lower Tax Liability: A lower taxable income means you pay less tax for the financial year, resulting in direct savings or a higher tax refund.
Tax Relief for Non-HRA Individuals: It provides crucial tax relief for a large number of self-employed individuals and employees who are not covered by the HRA benefit, leveling the playing field.

Important Points to Remember

To ensure a smooth and compliant process, keep the following points in mind:

Landlord’s PAN: If the total rent you pay in a financial year exceeds ₹1,00,000 (approximately ₹8,333 per month), it is mandatory to provide your landlord’s PAN in Form 10BA. If the landlord does not have a PAN, a declaration to this effect should be obtained from them.
No Double Dipping: If you and your spouse are living together in a rented accommodation, you cannot both claim a deduction under Section 80GG for the same rent paid. Only one person can make the claim.
Proof is Key: As mentioned, always insist on rent receipts (preferably with a revenue stamp if the payment per receipt is over ₹5,000) and have a formal rental agreement in place. These documents are your primary defense in case of an inquiry.

Conclusion

For taxpayers who do not receive HRA, Section 80GG is a valuable provision that should not be overlooked. The process of claiming deductions for rent paid is straightforward if you follow the prescribed steps. The key is to first meticulously check your eligibility, then accurately calculate the permissible deduction amount based on the three-tier formula. Finally, you must file Form 10BA online before claiming the deduction in your ITR. By following this process, you can ensure a smooth and successful claim, turning your rental expenses into a smart tax-saving opportunity and significantly reducing your tax burden for the year.

Navigating tax rules can be complex. If you need expert assistance with ITR filing or want to explore more tax-saving options, contact the experts at TaxRobo Income Tax Service today!

Frequently Asked Questions (FAQs)

Q1. Can I claim HRA and a deduction under Section 80GG in the same year?

A: No. A fundamental condition for claiming a deduction under Section 80GG is that you should not have received HRA for any part of the financial year. If you received HRA, even for one month, you become ineligible for the 80GG deduction for that entire year.

Q2. What if I pay rent to my parents? Can I still claim a deduction under 80GG?

A: Yes, you can claim a deduction under Section 80GG for rent paid to your parents. However, to make the claim legitimate, you must have a formal rental agreement with them and make actual rent payments through banking channels (like bank transfers) as proof. It is also important to note that your parents must declare this rental income in their own income tax returns.

Q3. Is a written rental agreement compulsory for claiming this deduction?

A: While you are not required to upload or submit the rental agreement when filing your ITR, it is considered essential proof. In case your return is selected for scrutiny, the assessing officer will almost certainly ask for the rental agreement and rent receipts to verify the claim. Therefore, it is highly recommended to have a formal, written agreement in place.

Q4. I am a small business owner. How does the process of claiming deductions for rent paid work for me?

A: The process for self-employed individuals, such as small business owners or freelancers, is exactly the same as for salaried individuals. As long as you meet all the eligibility criteria laid out under Section 80GG (no HRA, no residential property in the same city, etc.), you are entitled to claim this deduction. For more specific guidance, you may find our guide on Filing Tax Returns for Freelancers and Consultants helpful. You must calculate your eligible amount based on your ‘Adjusted Total Income’ and follow the two-step process: file Form 10BA online and then claim the deduction in your ITR.