Some instances when the rent paid is allowed as a deduction while arriving at total taxable income

An individual is allowed a deduction on the rent he pays for the house occupied by him. The relevant provisions are contained under Section 80GG of the Income Tax Act. In computing the total income of an assessee, he is allowed a deduction on the expenditure incurred towards payment of rent for any furnished or unfurnished accommodation occupied by him. The residence should be rented for 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 salaried employees only as is the case with house rent allowance (HRA). Further, he should not have received a HRA at any time during the previous year. In case he had received a HRA during any part of the previous year, the deduction under Section 80GG is not available to him. The assessee should file a declaration in Form 10BA furnishing the expenditure incurred by him towards the payment of rent.


However, the Income Tax Department may prescribe other conditions or limitations, regarding the area or place in which the accommodation is situated, after taking into account other relevant considerations.

Normally, most salaried employees get HRA and accordingly the deduction on rent paid is governed by the provisions related to HRA under the Income Tax 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 total income for the year (excluding long-term capital gains and some specified incomes, before allowing deduction for any expenditure under this Section) Expenditure incurred in excess of 10 percent of total income towards rent (excluding long-term capital gains and some specified incomes, before allowing deduction for any expenditure under this Section)

The deduction will not be available to an assessee in case a residential accommodation is owned by him, his spouse or minor child, at the place where he ordinarily resides or carries on his business. Also, the deduction will not be available to an assessee in case a residential accommodation is owned by him at any other place, provided this accommodation is occupied by the assessee, and the concession available for a self-occupied house has been claimed by him under Section 23 for this property. In such a case, no deduction will be allowed on 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 on the rental expenses incurred.