Assessees are allowed a deduction on the expenditure incurred towards payment of rent for a house occupied by them. The relevant provisions in this respect are contained under Section 80GG of the IT Act. As per the provisions of the Income Tax 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 used for the purpose of his own use only.
In order to avail this deduction, the assessee should be self-employed or a salaried employee. The deduction is not restricted to the salaried employees only as is the case in HRA. Further, he should not be in receipt of any house rent allowance at any time during the previous year. In case he receives any HRA during any part of the previous year, the deduction under Sectio 80GG is not available to him. The assessee should file a declaration in Form 10BA regarding the expenditure incurred by him towards the payment of rent.
The Income Tax Department may prescribe other conditions or limitations , with regard to the area or place in which the accommodation is situated and after taking into account other relevant considerations .
Normally, most of the salaried employees are in receipt of house rent allowance and accordingly the deduction on account of rent paid is governed by the provisions related to HRA under the IT Act. The biggest advantage of this deduction is that it is available even to self-employed people who stay in rented accommodation.
Amount of deduction is limited to the least of these amounts:
Rs 2,000 per month 25 percent of his total income for the year (excluding long-term capital gains and some specified incomes but before allowing deduction for any expenditure under this section) Expenditure incurred by him in excess of 10 percent of his total income towards payment of rent (excluding long-term capital gains and some specified incomes but before allowing deduction for any expenditure under this section) Least of the above three amounts is to be computed and is deductible from the total income for arriving the taxable income.
Deduction will not be available to an assessee where a residential accommodation is owned by him, his spouse or minor child, or a Hindu undivided family, at the place where he ordinarily resides or carries on his business or profession. Deduction will also not be available to an assessee in case any residential accommodation is owned by him at any other place, and he is in occupation. Also, it will not be available if concession in respect of self-occupied house is claimed by him for property under Section 23 of the IT Act. In such a case, no deduction will be allowed in respect of the rent paid, even if the person does not own any residential accommodation at the place where he ordinarily resides or carries on his business.
These provisions enable self-employed people and others not in receipt of HRA to claim deduction for the rental expenses paid by them.