Section 80GG – How doctors can save tax on Rent Payments?

House rent comprises a major portion of family expenses. And this is considered to be a pure expense, without any tax benefit attached, especially for those who don’t get House Rent allowance in their salary or even for those who are self-employed professionals, like- doctors running their own practice.

(Also Read: Financial Planning tips for practicing Doctors)

But do you know that there is a provision in the Indian Income-tax act where one can save tax on the house rent payment?

Section 80GG of the Indian Income-tax act comes to the rescue of all those doctors who are burdened under higher housing rentals. This is an old section but still many are not aware of this. It has gained traction only when in the budget speech 2016, Finance Minister raised the minimum limit of exemption.

In this article, we’ll discuss in detail section 80GG and how it will help in saving taxes on rent paid to those who don’t get any House Rent Allowance.

What is Section 80GG in the Indian Income-tax Act?

Section 80GG is meant to provide relief on House rent paid, to all who don’t get any House Rent allowance from their employers or those who are self-employed or Professionals running their own practice.

However such relief/tax deduction is permissible subject to certain conditions. The doctor who wants to avail this benefit:

1.) Should be an Individual

2.) Should be residing in the same house for which he/she wants to claim the rent payment benefit.

3.) If employed, should not be getting any House Rent Allowance. (Read: How Salaried Doctors can claim HRA Exemption)

4.) Should not own any residential accommodation in the name of self, spouse, joint, minor child, or HUF (which he/she’s a member of), near the place of ordinary residence or regular employment.

5.) Should not own any residential accommodation at any other place, of which he/she is claiming Income tax benefit u/s 23(2) a or 23(4) a i.e. where the annual value of house is being taken as NIL as per Income from House property for calculation in Income tax.

6.) Should file a declaration as per FORM-NO.-10BA, to claim the relief u/s 80GG.

What is the Limit of deduction available in section 80GG?

If any doctor, satisfies the above-mentioned conditions, then he/she can claim benefit under section 80GG, as least of the following:

1. Rent paid minus 10% of adjusted total Income
2. Rs 5000 per month ( w.e.f FY 2016-17), earlier it was Rs 2000 per month
3. 25% of adjusted total Income

What is adjusted total Income?

To calculate the benefit available to you, you need to calculate your adjusted total income, which is Gross total income Less Long term and short term capital gain, and Less all deduction under section 80C to 80U, except section 80GG. In other words, it would be only your salary or business income, before adding any long/short term capital gain, and after deducting any investments or claiming any tax benefit u/s 80C to 80U.

(Also Read: Qualifying Expenses and Investments under section 80C)

Let’s understand all this with an example:

Dr. Rahul, a consultant doctor in ABC hospital, lives in Indore. He earns a salary of around Rs 8 lakh per annum, with no HRA in it. He lives in rented accommodation and pays rent of Rs 15,000 per month. He usually makes Rs 1,50,000 investment in PPF every year to save tax u/s 80c. If Dr.Rahul satisfies all conditions, then how much of section 80GG benefit he can claim?

Solution:

Gross total Income – Rs 8,00,000

Savings u/s 80C – Rs 1,50,000

Total adjusted income – Rs 6,50,000

Rent paid in a year – Rs 1,80,000

Least of the following can be claimed as exemption u/s 80GG –

1. Rent paid minus 10% of adjusted total Income

Rs 1,80,000 – Rs 65,000 = Rs 1,15,000/-

1. Rs 5,000 per month i.e. Rs 60,000/-
2. 25% of adjusted total Income i.e. Rs 1,62,500/-

So, Dr. Rahul can claim a benefit of Rs 60,000 under section 80GG on house rent paid. So, now his taxable income would come out to be Rs 5,90,000, which otherwise would have been Rs 6,50,000 ( if he’s not already claiming section 80GG benefit)

Conclusion:

Since changes in the limit under section 80GG requires amendment in law, so it has not kept pace with changes in the law for HRA deduction, which requires just a notification. But finally, after so many years, the government has realized that house rentals are actually very high and people should be given some relief on these expenses. Though in my view even Rs 5,000 is too less, but still better than Rs 2,000 earlier, and I hope that the government would keep on revising this limit, keeping pace with ever-increasing house rentals.

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