Of the total number of people with regular income in India, around 76.8 per cent were self-employed in 2022, according to the World Bank data. This statistic shows that a significantly large number of people, including senior citizens, are self-employed, gig workers, or work as consultants. So, if you are one of those people and live in a rented house, you will not have access to HRA. In that case, how can you avail of tax deductions on rent payments?

Section 80GG in Chapter VI-A of the Income-tax Act, 1961 provides tax relief on rent payments for such people, provided they fulfill certain conditions.

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When Section 80GG Applies?

• The taxpayer should live on rent, regardless of furnished or unfurnished accommodation.
• They must not own property in the same city where they work, including in their spouses’ or children’s name.
• They must not get HRA from the employer.

How To Calculate 80GG Deduction?

Like HRA, 80GG deductions are calculated based on the following points.

• The taxpayer pays Rs 5,000 monthly rent or Rs 60,000 per year.
• The actual rent paid minus 10 per cent of income.
• Twenty-five per cent of the total income do not include long- and short-term capital gains.

Whichever is lower from these three is considered for deduction.

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Points To Consider: 

• The property owner must submit their PAN card if the annual rent payment is over Rs 1 lakh.
• To claim the deduction, one must submit Form 10BA, which includes rent details. It is a declaration by the taxpayer confirming that they have not availed of tax benefits from a self-occupied property in another location.
• Employees getting HRA as part of their salary are ineligible for deduction.
• If they pay rent on their parents’ property, they must provide a rent agreement with them. This payment is taxable in the parents’ hands as per their tax slab.

Also, note that the new tax regime is the default tax regime for everyone unless the taxpayer changes it to the old regime to avail of deductions under section 80GG and HRA. Under 80GG, a maximum of Rs 5,000 per month, or Rs 60,000 a year, can be claimed for deduction.