Being a startup owner, Neeraj had to plan his taxes carefully since he didn’t have an option of restructuring his income, unlike the salaried employees.
He was living in a rented flat in Mumbai, while his home town was Uttarakhand. He would always feel bad about paying rent to the landlord but not getting any benefit in the income tax law.
“How good it would be if people not receiving HRA could also get a deduction of rent paid to reduce their tax outgo”, Neeraj would always think.
However, he didn’t know about 80GG which is beneficial for Neeraj and several other taxpayers like him.
What is Section 80GG..??
If you are a self-employed person or a salaried employee paying rent for residential purpose, but not receiving HRA, you can claim a deduction of rent paid under this section.
You should ensure that your spouse, minor child, or a HUF of which you are a member, shouldn’t own any residential accommodation at a place where you reside or work.
If you fulfill the above conditions, you can claim the lowest of following amounts as a deduction –
1. Rs 5,000 per month i.e. 60,000 per year;
2. 25% of the Adjusted Total Income
3. Actual rent less 10% of Adjusted Total Income
(*Adjusted total income refers to the total income after subtracting long-term capital gain, short-term capital game u/s 111A, income u/s 115A or 115D, and deductions u/s 80C to 80U [except deduction u/s 80GG])