How to claim an income tax deduction on house rent payment without HRA

The salaried individuals, who stay in rented accommodation, take advantage of claiming the house rent allowance (HRA) exemption from their salary. The benefit of exemption significantly reduces their income tax liability. However, if the individual does not receive HRA from the employer, i.e. there is no HRA component in salary, he cannot claim HRA exemption. However, those employees who do not receive HRA but stay in rented accommodation can also benefit from the deduction for rent paid under other provisions of the Act. 

The taxpayer can claim a deduction under Section 80GG of the Income Tax Act towards the expense paid for house rent. Let us understand the eligibility criteria and conditions to claim the deduction.

Who can claim the deduction?

Following persons can claim the deduction:

• A self-employed individual
• An individual who does not receive HRA with salary

What are the conditions to satisfy to claim the deduction?

The taxpayer should also satisfy the following additional conditions:

• The taxpayer, his spouse, minor child, HUF (where he is a HUF member), does not own the accommodation where the taxpayer resides, performs his official duties, or carries any business.
• The taxpayer cannot claim any tax benefits for the residential property, for which income from house property is calculated under specified sections (as a self-occupied property).
• The taxpayer must submit a declaration by mentioning the rent payment details and certifying the fulfilment of the above conditions. The income tax department has notified Form 10BA for such declaration.

For example, Mr Y resides in a rented accommodation near his place of employment. He owns a residential property in another city, for which he claims deductions with respect to a self-occupied property. Mr Y cannot claim a deduction under Section 80GG for rent paid for accommodation.

What is the eligible amount of deduction?

The taxpayer can claim a deduction of the lowest of the following-

• Rs 5,000 per month
• Amount of rent paid above 10% of adjusted total income*
• 25% of adjusted total income

*Calculate adjusted total income using the formula below:

Gross total income XXXX

Less: Long-term capital gains (if any) XXXX

Less: Short-term capital gains (under section 111A) XXXX

Less: Deductions under Sections 80C to 80U

(except Section 80GG) XXXX

Adjusted total income XXXX

Which ITR form to file?

The taxpayer can claim the eligible amount of deduction in the ITR forms for return filing. ITR forms – ITR-1, ITR-2, ITR-3, and ITR-4 allow individuals to claim deductions under Section 80GG.

Hence, self-employed taxpayers and salaried employees not receiving the HRA can claim a deduction for paying rent for accommodation.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in