How To Claim Tax Deductions For Rent Without House Rent Allowance (HRA)

Many employees believe that the tax benefit of rent payment is only when they receive HRA. However, Section 80GG provides relief for individuals, both salaried as well as self-employed who do not get HRA but incur rental expenses. This provision can help reduce your tax liability appreciably if you meet certain conditions.

Eligibility to Avail Rent Deductions under Section 80GG

You are eligible to avail of tax deductions under Section 80GG if you meet the following conditions:

You should be either a self-employed person or an employed person who does not get HRA from his employer.

You should be a tenant. Neither you nor your spouse nor any of your minor children should own a home in the city and the place where you are working and staying.

You can't avail of tax benefits on that property under other sections, for instance, Section 24 (for interest on a home loan) if you have another house in some other city.

How to Determine the Amount of Deduction

You can avail of deduction under Section 80GG - it is a minimum of three:

1. The deduction limit for rent paid is capped at Rs 5,000 per month. So, even if one's monthly rent exceeds Rs 5,000, as far as this provision is concerned, the maximum amount that can be claimed there should not exceed Rs 5,000 in one month, which works out to Rs 60,000 for a year.

2. 25 per cent of your total income on a yearly basis, - which is gross total income minus capital gains and other deductions.

3. The actual rent paid minus 10 per cent of your total income.

For example, if you have a total annual income of Rs 8 lakh and the annual rent paid is Rs 1 lakh, the calculation for the deduction would be as follows:

Total income = Rs 8 lakh

10 per cent of Rs 8 lakh = Rs 80,000.

Actual rent paid = Rs 1 lakh

For your Section 80GG deduction, start by finding the 10 per cent of your income. So, taking this income at Rs 8 lakh, 10 per cent would be Rs 80,000. Then subtract this from the annual rent paid by you, taking Rs 1 lakh as an example in this case, and you are left with Rs 20,000. Compare this Rs 20,000 with the other two limits: the fixed annual limit of Rs 60,000 and 25 per cent of your income, which is Rs 2 lakh. Since Rs 20,000 is the lowest amongst these three, that's the amount you can have as a deduction under Section 80GG.

Filing Requirements and Form 10BA

This deduction can be claimed by filing form 10BA, which is a declaration stating that you are not receiving HRA and that you are dwelling in rented accommodation. You need to file it with the Income Tax Department along with your income tax return.