Individual taxpayers, both salaried employees and self-employed professionals, are allowed a deduction against expenses incurred towards payment of rent for a residential accommodation. This allows even taxpayers who are not in receipt of house rent allowance to claim a deduction against the rent they pay for a house occupied by them. However, there are some conditions that need to be met under the IT Act.
According to the Income Tax Act, individuals are allowed a deduction against expenditure incurred towards payment of rent for a house occupied by them. This is provided under Section 80GG of the Act. The provisions enable self-employed assessees and others not in receipt of a house rent allowance (HRA) to claim deduction against the rental expenses borne by them.
Normally, most salaried employees are in receipt of HRA and accordingly the deduction against rent paid is governed by the provisions related to HRA under the Income Tax Act. Under the Act, in computing the total income of an assessee, he is allowed a deduction for the expenditure incurred towards payment of rent for any furnished or unfurnished accommodation occupied by him. The residence should be occupied by him only. In order to avail this deduction, the assessee should be a self employed person or a salaried employee. The deduction is not restricted to the salaried employee only. Further, he should not be in receipt of any HRA at any time during the previous year. In case he received any HRA during any part of the previous year, the deduction under Section 80GG is not available.
The assessee should file a declaration in Form 10BA regarding the expenditure incurred by him towards the payment of rent. The biggest advantage of this deduction is that it is available even to self-employed people who stay in a rented accommodation.
The Income Tax Department may prescribe other conditions or limitations with regard to the area or place in which such accommodation is situated, after taking into account other relevant considerations.
The mount of deduction is limited to the least of:
• Rs 2,000 per month
• 25 percent of his total income for the year excluding long-term capital gain and some specified incomes, but before allowing deductions on any expenditures under this section
• Expenditure incurred by him in excess of 10 percent of his total income towards rent excluding long-term capital gain and some specified incomes but before allowing deductions on any expenditures under this section
The deduction will not be available to an assessee in case the residential accommodation is owned by him, his spouse or minor child, in the region where he resides. The deduction will also not be available to an assessee in case a house is owned and occupied by him at any other place, and the deduction for a selfoccupied house is claimed by him on it under Section 23 of the Income Tax Act. In such a case, no deduction is allowed on the rent paid, even if the person does not own a house in the region where he resides.
