Deduction for rent paid under section 80GG (as set, 1961 Act, AY 2017-18)

Who can claim it

Section 80GG allows a deduction for rent paid by an assessee for a furnished or unfurnished house that he occupies for his own residence. It is meant for those who get no house rent allowance: it is not available to an assessee who has any income covered by section 10(13A), that is, a house rent allowance from an employer. It therefore helps the self-employed, and employees whose pay has no house rent allowance. The deduction is also subject to conditions the rules may prescribe with regard to the place where the accommodation is, which include a declaration in the prescribed form (Income-tax Rules, 1962, rule 11B, inserted by CBDT Notification No. 10722 of 13 October 1998 (S.O. 902(E)): the deduction is allowed only if the assessee files the declaration in Form No. 10BA, in which he also states that he owns no other residential accommodation of the kinds the proviso to section 80GG describes).

Amount of the deduction

The deduction is the least of the following three (section 80GG):

1. the rent paid in excess of 10% of the assessee's total income;
2. ₹5,000 a month (₹60,000 for a full year); this limit was raised from ₹2,000 a month with effect from 1 April 2017 (footnote to section 80GG), so ₹5,000 applies from assessment year 2017-18;
3. 25% of the assessee's total income for the year.

When it is not allowed

No deduction is allowed (section 80GG, proviso) where:

• the assessee, his spouse or minor child, or the Hindu undivided family of which he is a member, owns residential accommodation at the place where he ordinarily lives or works or carries on his business or profession; or
• the assessee owns a house at any other place which he occupies himself and whose annual value is taken as nil as a self-occupied house (section 23(2)(a) or 23(4)(a)).

Meaning of total income here

For the 10% and 25% tests, total income is the total income before allowing this deduction (section 80GG, Explanation): that is, after all other deductions, but before section 80GG itself.

Illustration

Mr. R, self-employed in Delhi, has a total income of ₹4,80,000 (after other deductions, before section 80GG) for assessment year 2017-18 and pays rent of ₹8,000 a month (₹96,000 a year). He owns no house. The least of:

1. ₹96,000 − 10% of ₹4,80,000 = ₹48,000; (b) ₹60,000; (c) 25% of ₹4,80,000 = ₹1,20,000. The deduction is ₹48,000, and his total income becomes ₹4,32,000.