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What Does Section 80GG of The Income Tax Act Say?

dateKnowledge Centre Team dateAugust 18, 2021 views314 Views
Section 80GG | Tax Deductions

House rents can be a real burden, mainly in the cosmopolitan cities where arranging a house on rent is arduous. As the demand for the rented house is relatively high, the rent amount is also growing with each passing day. Generally, people prepare a tax saving checklist every financial year to understand how and where they can get tax benefits. Individuals who have to rent a home but do not sustain HRA (House Rent Allowance) might affect their monthly earnings. According to Income Tax Act, 1961, Section 80GG enables you to claim a deduction on the value of rent you pay each year.

What is Section 80GG of the Income Tax Act?

80GG is a section that can be found in the Chapter VI-A of the Income Tax Act of India, following which a person can claim a deduction on the rent paid regarding a furnished or unfurnished house. The house should be in use for its residential purpose. The deductions indicate the expense you can subtract from your gross income of the year to determine the net taxable income on which the income tax would be imposed.

Who is Qualified to Claim Tax Deductions under Section 80GG?

As stated previously, one must meet particular essentials to avail tax deductions below this peculiar section of the ITA. Enumerated here are a few of the constituents that an individual must satisfy to claim Section 80GG deduction.

a. Solely individuals and Hindu Undivided Family (HUF) are qualified to claim these tax deductions. Businesses or other companies cannot avail of identical tax discounts against paying rent in a given fiscal year.

b. People who are salaried professionals or self-employed can also gain profit from this provision. If one has no income to the discourse of, they are excluded from endeavoring Section 80GG income tax advantages, yet if they pay the rent.

c. Those attempting to avail of this tax deduction must submit a correctly filled Form 10BA to the government before. This Form is a declaration that the person filing it does not claim privilege from a self-occupied property in any place.

d. Section 80GG of the Income Tax Act is specially produced for those who do not obtain a House rent allowance from their employers. If an individual's salary constitutes an HRA amount, they are is unfit to claim income tax deductions associated with housing rent.

e. If the annual rent expense surpasses Rs.1 lakh, the taxpayer will have to present a copy of the house owner's PAN card to demand tax benefits supporting Section 80GG of the Income Tax act.

f. An individual should not have claimed HRA at any time during the fiscal year for which they are claiming the tax benefit under Section 80GG. This is a critical time for those who have switched employers in the previous year.

Even when a person did not procure HRA for a substantial part of the year, getting the same for only a single month disqualifies them from claiming this yearly reprieve.

g. Individuals residing with their parents in a property owned by their parents are also eligible to claim Section 80GG benefits. For this, a person would be required to sign a rental agreement with their parents. Further, the amount conferred as rent will be taxable when the parents file their tax returns.

h. Non-resident Indians are also eligible to claim tax benefits under this provision. But, they should be handling rent for a property in India to implement the same.

How to File Form 10BA?

As mentioned above, Form 10BA is necessary for individuals wanting to gain tax benefits under Section 80GG. It is a declaration that you have taken a house on rent during the relevant period and also that you have no other residence. Here are a few of the details that a person has to fill in Form 10BA before submitting it:

a. Complete address with postal code
b.Name and PAN number of the assessee
c. Method of payment

d. Duration of residency in months
e. Rental cost
f. Name and address of the property owner
g. Declaration asserting that the assessee, his/her mate, or minor child do not possess any additional residential estate
h. PAN card number of the rented property's proprietor is compulsory if the cost of rent surpasses Rs.1 lakh in any provided fiscal year.

Where can one Get Form 10BA?

These forms are readily available from various sources, including the human resource department in any reputed organization. One can also obtain the form by visiting tax offices. However, the most convenient place to spot one is online. People can search for and download it from various official websites.

Exceptions of Section 80GG

Let's take a look at some exceptions under section 80GG:

a. You should not be the owner of a property (residential) in the area where you ordinarily live or conduct out work.
b. You will not avail of deductions if you are previously claiming deductions on residential property maintained in a different place. If you live in a city and own a property or house in some other city, you can't claim HRA deductions.

Amount Eligible for Deductions

You can claim the minuscule amount from least of the following:

1. 25% of your adjusted total Income*
2. ₹5000 per month/ ₹60,000 per year
3. Total rent paid after deducting 10% of adjusted total income*

*Adjusted total income means Gross total Income after reducing Long Term Capital Gain or Short Term Capital Gain u/s 111A or NRI incomes, if any already included in total income and also deducting deduction u/s 80C to 80U of IT Act except this section.

Section 80GG is an efficient and straightforward way to get an income tax deduction. Though, the deductions might, at times, fall short of decreasing your total tax burden. In such circumstances, you can choose to invest in different financial products to assist you in deductions under various sections of the ITA.

You can purchase a financial product by Canara HSBC Oriental Bank of Commerce Life Insurance if you are looking to get additional tax deductions. Having an assortment of life insurance policies, ULIPs, and so many more to choose from, you can pick whatever suits your needs. All the products offered are eligible for tax deductions and additionally provide other benefits.

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FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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