Reduce Tax on Rent: Your Guide to Section 80GG

Reduce Tax on Rent: Your Guide to Section 80GG

Many taxpayers live in rented homes but do not receive House Rent Allowance (HRA) as part of their salary. For them, Section 80GG of the Income Tax Act provides a much-needed deduction that helps lower taxable income.

Whether you are self-employed, switching between jobs, or earning a salary without HRA, this section allows you to claim rent paid during the year, subject to conditions and limits. To claim it, you must also submit a declaration confirming that neither you nor your family owns residential property in your place of work.

This blog explains Section 80GG in detail, along with eligibility, deduction limits, and how to calculate your claim.

Introduction to Section 80GG of the Income Tax Act

Section 80GG of the Income Tax Act offers tax relief to individuals who live in rented accommodation but do not receive House Rent Allowance (HRA) from their employer. This provision is particularly beneficial for salaried employees without HRA, self-employed individuals, and freelancers who pay rent entirely out of pocket.

The deduction is calculated based on specific limits and requires the taxpayer to meet certain eligibility conditions related to property ownership and residence.

Section 80GG also mandates that the taxpayer file a formal declaration confirming that the taxpayer and their family do not own any residential property in the city of employment. Overall, this section bridges the gap for those who incur rental expenses but lack HRA benefits.

Who is Eligible to Claim Deduction under Section 80GG?

Section 80GG applies to individuals who pay rent for their accommodation but do not receive HRA as part of their salary structure. To claim this deduction, the taxpayer must meet certain criteria regarding employment, residence, and property ownership.

Eligibility criteria include:

• Salaried individuals who do not receive HRA at any point during the financial year
• Self-employed professionals, freelancers, and gig workers who live on rent
• Individuals who, along with their spouse or minor child, do not own a residential property in the city where they work or conduct business
• Taxpayers who are not claiming benefits of a self-occupied property in any other city

If all these conditions are satisfied, the individual becomes eligible to claim a deduction under Section 80GG.

Conditions and Documentation Required for Section 80GG

To successfully claim a deduction under Section 80GG, taxpayers must comply with certain conditions and maintain specific documentation. These rules ensure that relief is extended only to those who genuinely incur rental expenses and do not receive HRA benefits.

Key conditions:

• You must be paying rent for your residential accommodation
• You should not be receiving HRA during any month of the financial year
• You, your spouse, or minor child should not own any residential property at your place of employment
• If you own property elsewhere, you must not claim it as self-occupied

Required Documentation:

• Form 10BA – a mandatory declaration confirming rent payment and your property ownership status
• Rent receipts and, where applicable, a rent agreement as proof of payment

These documents help verify eligibility and ensure smooth processing of the deduction claim.

How to Calculate Deduction Under Section 80GG?

The deduction under Section 80GG is computed using a formula prescribed by the Income Tax Act. The allowable deduction is the lowest of the following three amounts:

• ₹5,000 per month (or ₹60,000 annually)
• 25% of adjusted total income
• Actual rent paid minus 10% of adjusted total income

Adjusted total income refers to income after excluding long-term capital gains, short-term capital gains taxed under Section 111A, income under Section 115A, and deductions under Sections 80C to 80U.

Once all three figures are calculated, the smallest value becomes the final deduction you can claim under Section 80GG. This ensures equitable tax relief that reflects your rental expenses and overall income profile.

Section 80GG vs House Rent Allowance (HRA) – What’s the Difference?

Section 80GG and House Rent Allowance (HRA) are both provisions that help taxpayers reduce their tax burden on rent payments. However, they apply to different situations and follow different calculation rules. HRA is available only to salaried employees who receive HRA as part of their salary structure.

Section 80GG, on the other hand, is meant for individuals who pay rent but do not receive HRA, including self-employed people, freelancers, and salaried employees without HRA.

While HRA offers potentially higher deductions based on salary, rent paid, and city of residence, Section 80GG provides a fixed formula-based deduction with stricter eligibility conditions. Understanding the difference helps taxpayers choose the correct provision and avoid dual claims.

Comparison Table: Section 80GG vs HRA

Common Mistakes to Avoid While Claiming Section 80GG Deduction

When claiming a deduction under Section 80GG, taxpayers often overlook certain rules that can lead to rejection or reduced benefits. Avoiding these mistakes ensures a smooth and accurate claim.

Key mistakes to avoid:

• Claiming Section 80GG despite receiving HRA during the financial year
• Not filing Form 10BA, which is mandatory to validate your eligibility
• Ignoring the condition that you, your spouse, or minor child should not own a residential property in the city of work
• Using incorrect values while calculating the adjusted total income
• Failing to maintain proper rent receipts or a rent agreement as proof
• Claiming a deduction on rent paid for a property owned by yourself or your family
• Avoiding these errors ensures your deduction claim remains compliant and valid.

AN Jan 31/26