How Business Owners and Freelancers Can Slash Tax Outgo By Claiming House Rent

“Can you please reduce the rent for the initial few months?”, Trupti was convincing the landlord.

Trupti had shifted to Jaipur 10 days ago, as after quitting her job, she was stepping into the world of entrepreneurship to guide and mentor MBAs.

“Sir, it will be great if you can please reduce the rent for 6 months till I don’t start earning significantly,” Trupti was pleading, “I can’t even claim House Rent Allowance now since I am not a salaried individual anymore. This rent will cost me an arm and a leg at present.”

“No, this rent won’t be as expensive to you as it looks. You can still claim the rent amount as a deduction and save taxes,” her landlord replied.

“Seriously? If I don’t get HRA, how can I claim rent against my income?” Trupti asked excitedly.

Are you also an entrepreneur, a freelancer or a job-doer who is paying rent for accommodation but not getting house rent allowance?

This article will help you immensely if you live in India. I will tell you about the section 80GG under which you can claim house rent as a deduction and save your taxes.

What is Section 80GG?

Section 80GG is applicable to you if you’re self-employed (entrepreneur or freelancer) or a salaried employee who doesn’t receive HRA, and you’re paying house rent.

What is the Amount of Deduction?

You’re eligible to claim the lowest of:

1. Actual rent paid during the year;
2. Rs 5,000 per month;
3. 25% of the Net Total Income
4. Actual rent paid minus 10% of Net Total Income

Net Total Income = Total Income minus Income at special rates minus deductions under 80C to 80U (excluding deduction under section 80GG).

What are the Conditions to be Fulfilled for Claiming the Deduction?

1. You or your spouse shouldn’t own any residential property in the city where you currently do your job, business or profession. For example, if you own a house in Delhi but choose to stay in a rented house in the same city, you can’t claim the deduction under section 80GG.
2. You shouldn’t have a residential property at any other place, in respect of which you’re claiming home loan interest (as a self-occupied property).

Do You Have to Submit Any Form or Rent Receipts along with the ITR?

You’ve to file Form 10BA and mention complete details of the landlord, address, and rent paid during the year.

You don’t have to submit rent receipts along with ITR. However, you should keep them in safe custody. You may be required to submit them at a later stage if the Income Tax Department calls for a detailed scrutiny or investigation.

Bottomline

Section 80GG can help you reduce your income by at least Rs 60,000 a year (subject to actual rent). If your income falls in 20% tax slab, you can save up to Rs 12,000 through this section.

However, there are certain other clauses associated with this section that can help you save taxes legally.