Who can claim the deduction for rent paid? :- Deduction for rent paid under section 80GG is allowed to following persons:-

  1. Any assessee who is self employed can claim this deduction from his/her income.
  2. Any person who is employed or salaried person but not receiving House Rent Allowance from his/her employer.

Conditions to avail the deduction in respect of rent paid:-

  1. Any residential house is not owned by him or spouse or his/her child at the place of his/her employment or business or profession.
  2. If he/she is a member of Hindu Undivided Family then there should be no residential house in the name that particular HUF at the place of his/her work or business or profession.
  3. The assessee should not have residential house at any other place which is shown as self occupied property and the value of income of that house is shown as nil.

The amount to be claimed under section 80GG

The least of the following amount is allowed as deduction from his/her income:-

  1. Actual rent paid minus 10% of total income of assessee. Here, total income means the income which is arrived after deduction under section 80C to 80U except the deduction under section 80GG. The short term capital gain which is taxable under section 111A is not included in total income. Long Term Capital Gain is also not included in total income.
  2. Rupees five thousand per month from financial year 2016-17 onward. previously this limit was Rupees two thousand.
  3. 25% of total income.

Example:- Mr. X had the following details in respect of his income for F.Y. 2016-17 as under:-

  • Income from business Rs.6,00,000/=
  • Amount deposited in PPF Rs.100000/=
  • LIC premium paid Rs.10,000/=
  • Mediclaim Insurance Premium paid Rs.10000/=
  • Long Term Capital Gain from Mutual Funds Rs.20,000/=
  • Rent paid Rs.100,000/=
  • He does not have any residential house anywhere in his name or in the name of spouse or child

Calculate the amount of deduction for rent paid by Mr. X?

Solution:-

The income from business                                                                Rs.6,00,000/=

Less: Deduction under section 80C

PPF deposited                                        Rs.1,00,000/=

Life Insurance Premium paid                 Rs.10,000/=                        Rs.1,10,000/=

Less: Deduction under section 80D

Mediclaim Insurance Premium Paid                                                    Rs.10,000/=

Total Income                                                                                     Rs.4,80,000/=

Deduction allowed for rent paid will be least of the following amounts :-

Rent paid minus 10% of total income

(Rs.100,000/= minus 48,000/= i.e.10% of Rs.4,80,000/=)      Rs.52,000/=

Or

Actual rent paid                                                                         Rs.100,000/=

Or

25% of total income i.e. 25% of 4,80,000/=                           Rs.1,20,000/=

Or Rs.5000/= per month                                                           Rs.60,000/=

From above figures we find that the least amount is Rs52,000/=. Therefore, Mr. X can claim a deduction under section 80GG for Rs.52,000/= from his total income.

Note:- The income received for Rs.20,000/= from long term capital gain shall not be included in his total income for the purpose of deduction in respect of rent paid.

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