Deductions under section 80GG

Deductions under Section 80GG

Section 80GG of the Income-tax Act 1961 lets you claim a deduction for rent paid on residential accommodation even when your employer pays no House Rent Allowance. For FY 2026-27 / AY 2027-28, the deduction equals the lowest of three computed values — capped at Rs. 60,000 per year — and is available only under the old tax regime. Eligibility turns on strict conditions around property ownership and HRA receipts. A mandatory declaration in Form 10BA must be filed on the income-tax portal before you submit your ITR; miss it and the Central Processing Centre will reject the deduction at intimation stage.

Who Qualifies for Section 80GG — and Who Is Ruled Out

Only individual taxpayers may claim this deduction. Hindu Undivided Families, companies, partnership firms, and LLPs are outside its scope regardless of circumstances.

Beyond entity type, you must satisfy all five conditions below simultaneously for FY 2026-27:

1. No HRA received from any employer during the year. If your payslip carried even a partial HRA component for a single month in FY 2026-27, Section 80GG is disqualified for the entire year — not merely the months in which HRA was paid. The disqualification is all-or-nothing.

1. You pay rent for residential accommodation you actually occupy. You cannot sub-let a property you own, collect rent, pay rent on a separate flat, and claim a double benefit.

1. Neither you, your spouse, your minor child, nor an HUF of which you are a member owns residential property at your place of employment or business. If your employer is in Pune and your name appears on a title deed anywhere in Pune, the deduction is denied — even if that property is a studio apartment in a different suburb and you live far from it.

1. If you own residential property elsewhere in India, it must be disclosed as let out (deemed or actual). Showing it as self-occupied and claiming nil annual value disqualifies you under this condition.

1. You must be on the old tax regime for AY 2027-28. Section 80GG is not available under the new default regime.

Eligibility edge cases from practice

• Partner in a firm drawing only profit share (no salary with HRA component): fully eligible.
• Consultant billing through their own private limited company: if the company pays you a salary that includes HRA, you lose individual eligibility even though you also own the company.
• Two employers in a year: if you received HRA from Job A from April 2026 to August 2026 and joined Job B with no HRA from September 2026 onward, you are disqualified for all twelve months of FY 2026-27.
• Spouse-owned property in the work city: your spouse's sole ownership of a city-flat does not disqualify your claim — but document this carefully with title deed evidence before a scrutiny proceeding.

How the Deduction Is Calculated: The Three-Way Formula and Adjusted Total Income

The allowable deduction is the lowest of these three independently computed amounts:

Calculating your Adjusted Total Income (ATI)

ATI is not gross salary or total receipts. It is a specific statutory figure:

ATI = Gross Total Income (GTI) MINUS (all Chapter VI-A deductions except Section 80GG itself) MINUS long-term capital gains MINUS income taxable at special rates under Sections 115A, 115AB, 115AC, 115AD

In plain steps:

1. Add up income from all heads (salary, business/profession, capital gains, other sources) to get GTI.
2. Subtract every deduction you are claiming under Chapter VI-A: 80C (PPF, ELSS, LIC — up to Rs. 1,50,000), 80CCD(1B) (NPS — up to Rs. 50,000), 80D (health insurance), 80E (education loan), 80TTA/80TTB, and any others.
3. Subtract any long-term capital gains included in GTI.
4. Do not subtract Section 80GG — the formula uses ATI to compute 80GG, so it is excluded to avoid circularity.

The result is your ATI. Use this single number in both Test 2 (25% × ATI) and Test 3 (rent − 10% × ATI).

A common error is using the gross income figure instead of ATI — this inflates both Tests 2 and 3 and leads to overclaiming.

Worked Examples: Three Taxpayer Profiles

Profile 1 — Freelance consultant in Bengaluru

A UX designer with professional billings, no HRA, paying Rs. 25,000/month for a flat in Indiranagar:

• GTI: Rs. 12,00,000
• 80C (ELSS + PPF): Rs. 1,50,000 | 80D (family floater): Rs. 25,000
• ATI = Rs. 12,00,000 − Rs. 1,75,000 = Rs. 10,25,000
• Annual rent paid: Rs. 3,00,000

Allowable deduction: Rs. 60,000 (Test 1 is the binding constraint.)

Tax saved at 30% slab + 4% cess = Rs. 60,000 × 31.2% = Rs. 18,720.

This pattern repeats for virtually every metro renter with ATI above Rs. 6 lakh: the Rs. 60,000 cap will almost always be the lowest of the three figures.

Profile 2 — Salaried employee without HRA, Tier-2 city

An operations manager at an early-stage startup in Indore whose CTC is structured as a flat salary with no HRA:

• GTI: Rs. 8,00,000 (after standard deduction of Rs. 75,000 under old regime)
• 80C: Rs. 1,50,000
• ATI = Rs. 8,00,000 − Rs. 75,000 − Rs. 1,50,000 = Rs. 5,75,000
• Annual rent: Rs. 1,20,000 (Rs. 10,000/month)

Allowable deduction: Rs. 60,000 (Test 1 binds by a narrow Rs. 2,500 margin over Test 3.)

Tax saved at 20% slab + 4% cess = Rs. 60,000 × 20.8% = Rs. 12,480.

Profile 3 — Newly qualified CA, first year of independent practice (Test 3 binds)

A CA in Jaipur in their first year of practice with modest initial billings:

• GTI: Rs. 4,00,000
• 80C (PPF only): Rs. 50,000
• ATI = Rs. 4,00,000 − Rs. 50,000 = Rs. 3,50,000
• Annual rent: Rs. 84,000 (Rs. 7,000/month)

Allowable deduction: Rs. 49,000 (Test 3 is the binding constraint.)

At low ATI levels, Test 3 can constrain the deduction below the Rs. 60,000 cap — a point many tax guides miss. This taxpayer's taxable income falls to Rs. 3,01,000, comfortably within the Section 87A rebate ceiling under the old regime.

Filing Form 10BA: Step-by-Step for AY 2027-28

Form 10BA is not an attachment to your ITR. It is a separate, standalone electronic submission filed on the income-tax portal before the ITR. CPC matches the declaration against the deduction claimed in Schedule VI-A of the return; if the form is missing, the deduction is disallowed in the Section 143(1) intimation with no notice or opportunity to rectify.

Documents and information to gather before you start:

• Landlord's full name and complete address exactly as on the rent agreement
• Landlord's PAN — mandatory if total annual rent exceeds Rs. 1,00,000 (roughly Rs. 8,334/month)
• Period of occupancy in FY 2026-27 (month and year of commencement and end)
• Total rent paid during FY 2026-27 (not monthly rent — the aggregate)
• Rent agreement and monthly receipts (not uploaded but retained for scrutiny)

Filing sequence on the portal:

1. Log in to www.incometax.gov.in with your PAN and password or Aadhaar OTP.
2. Navigate to e-File → Income Tax Forms → File Income Tax Forms.
3. Locate Form 10BA and select Assessment Year 2027-28.
4. Click Let's Get Started.
5. Enter the rented accommodation address in full.
6. Enter landlord details: name, address, PAN (if applicable), and whether the landlord is a relative.
7. Enter the total rent paid and the period of tenancy during FY 2026-27. If you vacated mid-year, enter the actual period and proportionate rent — do not enter the full-year figure.
8. Confirm both statutory declarations: no ownership of residential property at place of work/business, and no self-occupation of any other owned property.
9. Verify using Aadhaar OTP (fastest), net banking, or DSC.
10. Download and preserve the acknowledgement receipt — you may need the submission reference during processing queries.

File Form 10BA at least two to three working days before submitting the ITR to allow the system to register the submission.

Paying Rent to Parents: What the Rules Require

Paying rent to a parent and claiming Section 80GG is legally permissible. There is no provision in the Income-tax Act that prohibits it. However, the arrangement must have genuine economic substance — it is a legitimate area of scrutiny under CBDT's guidelines and AIS/TIS data matching now makes cross-verification easier than ever.

The paper trail that makes the claim defensible:

• A written rent agreement specifying the monthly rent, tenure, and the complete address of the property.
• Rent paid exclusively by banking channels — NEFT, IMPS, or UPI. Cash payments expose you to challenge, particularly since AIS picks up high-value cash transactions.
• Signed rent receipts for each month.
• The property must be in the parent's name (or jointly owned), not yours or your spouse's — ownership in your name defeats the entire purpose.
• Your parent must declare the rent received as income under "Income from House Property" in their own ITR. After the 30% standard deduction under Section 24(a), the net taxable rental income is 70% of rent received. If your parent's total income (including rent) is below the basic exemption limit, they may owe no tax, making the arrangement broadly revenue-neutral. If they are in a lower slab than you, the family tax liability falls overall.

The risk scenario: You claim Rs. 60,000 as 80GG deduction; your parent reports no rental income. The mismatch appears in AIS when your Form 10BA is filed with the parent's name and address. This is the pattern CBDT scrutiny guidelines flag. The solution is coordination, not concealment.

One hard rule: your parent cannot simultaneously declare the property as self-occupied (and claim nil annual value) while you are paying rent on it. That is a direct contradiction and will be rejected.

Section 80GG vs the New Tax Regime: Run the Numbers Before You Decide

Section 80GG's value under the old tax regime must always be weighed against the new regime's benefits — particularly after the Finance Act 2025 restructured the new regime slabs and expanded the Section 87A rebate to cover taxable income up to Rs. 12,00,000 for AY 2026-27 onward.

Side-by-side at Rs. 12 lakh gross income (self-employed individual):

The new regime saves over Rs. 1 lakh in this scenario — solely because the Rs. 60,000 Section 87A rebate wipes out the entire tax liability on incomes up to Rs. 12 lakh.

For salaried taxpayers under the new regime, the Rs. 75,000 standard deduction pushes the effective zero-tax threshold to Rs. 12,75,000, widening the gap further.

When can the old regime compete? When your total deduction stack — 80C (Rs. 1,50,000), 80CCD(1B) NPS (Rs. 50,000), 80D (Rs. 25,000), home loan interest under Section 24 (up to Rs. 2,00,000), and 80GG (Rs. 60,000) — is large enough to bring your taxable income substantially below the new regime equivalent. For a typical Section 80GG claimant who rents (no home loan interest), this is difficult to achieve at income levels below Rs. 15–18 lakh.

The practical takeaway: do not assume the old regime is better simply because you can claim 80GG. The Rs. 60,000 cap is modest relative to the rate differential at middle-income levels. Build a full comparison in a spreadsheet or use the IT portal's built-in tax calculator for the relevant AY before making your regime election.

TDS on Rent: The Parallel Obligation Under Section 194-IB

If you pay monthly rent exceeding Rs. 50,000, Section 194-IB of the Income-tax Act requires you to deduct TDS — regardless of whether you claim Section 80GG or HRA exemption. This obligation applies to any individual or HUF not liable to a tax audit under Section 44AB.

For FY 2026-27 (effective from 1 October 2024, the rate was reduced from 5% to 2%):

• Trigger: Monthly rent > Rs. 50,000
• Rate: 2% of the rent payable
• When to deduct: From the rent paid or credited in the last month of the financial year (March 2027), or the last month of tenancy if you vacate before March
• Deposit: Using Form 26QC (a challan-cum-statement), within 30 days from the end of the month in which TDS is deducted
• Certificate: Issue Form 16C to the landlord after depositing TDS

Worked figure: Monthly rent Rs. 60,000 → TDS = 2% × Rs. 60,000 = Rs. 1,200, deducted from the March 2027 rent and deposited by 30 April 2027.

Non-compliance with 194-IB attracts interest at 1% per month (for non-deduction) or 1.5% per month (for non-deposit), plus potential penalty under Section 271C. The 194-IB obligation runs parallel to and independently of the 80GG claim — ensure both are fulfilled for the same rental arrangement.

Common Mistakes That Get Section 80GG Claims Disallowed

1. Not filing Form 10BA before the ITR The most frequent cause of disallowance. CPC cannot entertain a post-filing rectification request for a missing Form 10BA in most processing scenarios. File the form first, confirm the acknowledgement, then file the ITR.

2. Receiving HRA for even one month A mid-year job change where the first employer paid HRA disqualifies the full year. Some taxpayers attempt to claim 80GG pro-rated for the months with no HRA — this is not permitted under the law as it currently stands.

3. Owning residential property in the same city Joint ownership matters: if you own even a 10% undivided share in a flat in your work city (say, inherited property), the deduction is denied. Clarify ownership positions before filing.

4. Treating owned property elsewhere as self-occupied If you own a flat in your hometown, your return must show it as let out or deemed let out. Any claim of self-occupation on that property invalidates your 80GG eligibility in the work city.

5. Using gross income as ATI Forgetting to deduct 80C and other Chapter VI-A amounts before computing the Test 2 and Test 3 figures results in overclaiming. The overclaimed amount may be assessed as underpayment of advance tax if discovered in scrutiny.

6. Missing landlord PAN on high-value rent Rent above Rs. 1 lakh per annum requires the landlord's PAN in Form 10BA. Without it, the portal may still accept the form, but the absence of a matched PAN creates a processing flag. Where a landlord genuinely refuses, document the attempt and obtain a written declaration.

7. Paying rent to a relative with no paper trail Rent to spouse, parents, or siblings is permissible but every element of the arrangement must be documented and the recipient must declare the income. AIS/TIS now cross-references transactions; an uncorroborated claim invites a scrutiny notice.

Key Takeaways

• Section 80GG is available only under the old tax regime for AY 2027-28. Lock your regime choice before or at the time of filing — it cannot be changed after submission for most taxpayers.
• The deduction equals the lowest of three tests — fixed cap (Rs. 60,000), 25% of ATI, and excess rent. For anyone with ATI above approximately Rs. 6 lakh paying market-rate city rent, the Rs. 60,000 ceiling is almost always the binding constraint.
• Compute ATI correctly: subtract all Chapter VI-A deductions (except 80GG itself) and any LTCG from your GTI before running the formula. Using gross income inflates the deduction amount and exposes you to disallowance in scrutiny.
• Form 10BA must be filed on the IT portal before the ITR. Landlord's PAN is mandatory if annual rent exceeds Rs. 1,00,000. Absence of the form results in automatic disallowance at CPC — there is no grace period.
• HRA during any part of the year disqualifies the full year's claim. Mid-year job changes require careful verification of both employers' salary structures before claiming 80GG.
• Rent to parents is legitimate but demands corroboration: written agreement, bank payments, monthly receipts, and the parent must report rental income in their own ITR.
• Run the old-regime vs new-regime comparison every year before filing. The new regime's zero-tax threshold (Rs. 12 lakh for self-employed, Rs. 12.75 lakh for salaried) means the Rs. 60,000 deduction alone will not tip the balance for most middle-income renters; you need a full deduction stack to make the old regime worthwhile.