Salaried Employees Can’t Claim Both Deductions Under Section 80GG and HRA

The income tax department has sent notices to many salaried employees to notify the disapproval of the claim for a deduction on rent paid under Section 80GG of the Income Tax Act. The employees had claimed the deduction in addition to the house rent allowance (HRA) received from their employers.

HRA is a component of your salary package, and you can claim an exemption by furnishing rental receipts to the employer. However, if an employee is not in receipt of HRA, the employee can claim a deduction under Section 80GG for the rent paid.

Taxpayers who are self-employed or not in receipt of HRA from their employer are eligible to claim deduction under Section 80GG. The maximum amount of deduction is Rs 5,000 per month or Rs 60,000 per annum. However, a deduction is not available to a taxpayer who owns a house but stays in a rented accommodation in the same city. Also, the deduction is not available to a person who owns a house in another city and claims tax benefit towards payment of home loan interest for that house.

The conditions for claiming deduction under Section 80GG are:

1. The taxpayer is self-employed or salaried.
2. The individual has not received HRA at any time during the financial year.
3. HRA should not be a component of the salary package.
4. The taxpayer, or their spouse or minor child or Hindu Undivided Family (HUF) of which taxpayer is a member does not own any residential accommodation at the place of present residence, or the performance of duties of the office or employment or carrying on business or profession.
5. The individual should not own any residential property at any place in respect of which the individual receives income from house property.

The deduction under Section 80GG would be the lower of:

1. Rent paid as reduced by 10% of the total income. 
2. Rs 5,000 per month or Rs 60,000 per annum.
3. 25% of the total income.

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

Sweta Dugar

I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.