Section 80GG of ITA, 1961 : Section 80Gg: Deductions In Respect Of Rents Paid

Explanation using Example

Let's consider a hypothetical scenario where Mr. Raj, a software engineer, is living in a rented apartment in a city where he works. Mr. Raj does not receive House Rent Allowance (HRA) from his employer, and he does not own any residential property. His total income for the financial year is ₹6,00,000, and he pays a monthly rent of ₹8,000 for his accommodation.

Under Section 80GG of the Income-tax Act, 1961, Mr. Raj can claim a deduction for the rent he pays. The deduction will be the least of the following three amounts:

1. Rent paid minus 10% of total income: ₹8,000 - 10% of ₹6,00,000 (₹60,000) = ₹2,000 per month.
2. ₹5,000 per month (the maximum limit set by the act).
3. 25% of total income: 25% of ₹6,00,000 = ₹1,50,000 per year or ₹12,500 per month.

Therefore, Mr. Raj can claim a deduction of ₹2,000 per month, as it is the least of the three calculated amounts. Annually, this amounts to a deduction of ₹24,000 from his taxable income under Section 80GG.