Section 134 of the Income Tax Act, 2025 provides a deduction for rent paid by individuals for residential accommodation. This deduction is particularly valuable for taxpayers who do not own their own homes and incur significant rental expenses. Rule 65 of the Income Tax Rules, 2026 requires the assessee to file a declaration in Form 31. Understanding these requirements is essential for claiming this deduction.
The Statutory Framework
Section 134: Deduction in Respect of Rents Paid
Section 134 provides that in computing the total income of an assessee, there shall be deducted any expenditure incurred by him towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence.
The deduction is allowable on payment of such rent exceeding 10% of his total income, subject to a maximum of Rs. 5,000 per month, or 25% of total income for tax year, whichever is less.
The 10% and 25% Formula
Step 1: Calculate 10% of total income
Step 2: Rent paid during the year minus 10% of total income
Step 3: The deduction is the lower of:
- Rent paid minus 10% of total income
- Rs. 5,000 per month
- 25% of total income
Illustration:
- Total income: Rs. 5,00,000
- Rent paid: Rs. 60,000 (Rs. 5,000 per month)
- 10% of total income: Rs. 50,000
- Rent paid minus 10% of income: Rs. 10,000
- 25% of total income: Rs. 1,25,000
- Deduction: Lower of Rs. 10,000, Rs. 60,000, and Rs. 1,25,000 = Rs. 10,000
Conditions for Claiming Deduction
Eligibility
The deduction is available to individuals who:
- Occupy residential accommodation for their own residence
- Pay rent for such accommodation
- Do not own residential accommodation at the place of residence or employment
- Do not have any income exempt under Schedule III (Table: Sl. No. 11)
Ineligibility
The deduction is not allowed where:
- Any residential accommodation is owned by the assessee or spouse or minor child at the place where he ordinarily resides or performs duties
- Any residential accommodation is owned by the assessee at any other place, being accommodation in the occupation of the assessee, the value of which is to be determined under Section 21(6) or (7)(a)
- The assessee has any income falling in Schedule III (Table: Sl. No. 11)
Form 31: Declaration Requirements
When to File Form 31
Rule 65 requires that for the purposes of claiming deduction under Section 134, the assessee shall file declaration in Form No. 31.
Content of Form 31
Form 31 requires the assessee to provide:
- Details of the accommodation occupied
- Amount of rent paid
- Landlord's name and address
- Landlord's PAN (if aggregate rent exceeds Rs. 1,00,000)
- Period of occupation
- Relationship with the landlord, if any
Verification
The declaration must be verified by the assessee. The person who is authorised to verify the return of income under Section 265 shall verify Form 31.
Compliance Requirements
When Landlord PAN is Required
Where the aggregate rent paid during the tax year exceeds Rs. 1,00,000, the assessee must provide the landlord's PAN in Form 31.
Relationship Disclosure
If the landlord is a relative of the assessee, this must be disclosed in Form 31.
Maintained Records
The assessee must maintain:
- Rent receipts
- Rent agreement
- Proof of payment (bank statements, rent receipts)
- Form 31 (signed and verified)
Practical Examples
Example 1: Basic Deduction
- Total income: Rs. 5,00,000
- Rent paid: Rs. 60,000 (Rs. 5,000 per month)
- 10% of total income: Rs. 50,000
- Rent paid minus 10% of income: Rs. 10,000
- Deduction: Rs. 10,000
Example 2: Higher Income
- Total income: Rs. 10,00,000
- Rent paid: Rs. 60,000 (Rs. 5,000 per month)
- 10% of total income: Rs. 1,00,000
- Rent paid minus 10% of income: Negative
- Deduction: Nil
Example 3: Higher Rent
- Total income: Rs. 5,00,000
- Rent paid: Rs. 1,20,000 (Rs. 10,000 per month)
- 10% of total income: Rs. 50,000
- Rent paid minus 10% of income: Rs. 70,000
- 25% of total income: Rs. 1,25,000
- Deduction: Lower of Rs. 70,000, Rs. 60,000 (Rs. 5,000 per month), and Rs. 1,25,000 = Rs. 60,000
Common Pitfalls and Compliance Issues
No PAN of Landlord: Where rent exceeds Rs. 1,00,000, PAN is mandatory.
Rent in Cash: Rent payment should be through banking channels to prove payment.
Rent Agreement: A rent agreement is essential, even if not required by law.
Ownership: If the assessee owns a house at the place of residence, the deduction is not available.
Expert Legal Guidance
Understanding the house rent deduction requirements is essential for taxpayers claiming this deduction. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers file Form 31 declarations and ensure compliance with all requirements.