Can i pay rent to my parents to avail HRA benefits

Can i pay rent to my parents to avail HRA benefits

Claiming HRA deduction gives lot of tax saving option to employees, specially for higher income brackets.

But, what is HRA ( House Rent Allowance)  first of all;

As per Income Tax Section Section 10(13A) “Any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations”. 

In layman’s language HRA is given by the employer to fulfill the rent payable requirements of the employee.

The conditions for claiming HRA benefit exemption two condition satisfied;

a)The employee is staying in rented accommodation

b)The rent is paid to the landlord

Employees can claim deduction up to 60% to 50%  of the amount received.

Under Income Tax Act , Calculation of HRA is Least of the following under section 10(13);

1)Actual HRA received from the employer.

2)50 per cent of (basic salary + dearness allowance) for those living in metro cities (40 per cent for non-metros)

3)Actual rent paid less 10 per cent of salary.

Since lot of people started giving fake bills the income tax department has become vigilant now and they want only genuine tenants should get the benefit.

In recent case ITAT mumbai, ruled that income tax department can ask for documents from the assessee as genuine tenant and verify the sham receipts from parents. All such efforts will be taken to prove that the tenancy is actual and benefit of HRA claimed is legitimate.

My submission of rent receipt will not help now there has to be another list of  transactions to happen to prove the tenancy.

For claiming HRA one should take care that the payment is made every month and the house where assessee stays is not owned in his /her name.

The Income Tax Appellate Tribunal recent Mumbai ruling has now laid down criteria for the assessing officer to consider the claim of a salaried employee and, if necessary, question its justification. 

The onus of proof will be one salaried people to follow rules for availing the exemptions.

The income tax department now has good reason to insist on proof from the taxpayer showing that he is indeed a genuine tenant, staying in the property in question. 

Following are the documentation and trial to be maintained:

  • Rent agreement is duly executed on a properly stamped paper and signed by both parties
  • Ensure that properly stamped rent receipts are issued on a monthly basis
  • Normally in a rented property, the electricity charges is borne by the tenant so need to keep in mind that all the payments are going from Tenant account
  • Ensure a letter is send to Society stating the premises are rented out
  • Rent payment is preferably made through Banking Channel like NEFT or Cheques
  • Rent Paid is reasonable compared to locality and size of apartment
  • If landlord is family member ensure he or she is filing Income Tax Return and showing rent as Income

Thus, for the rent paid in excess of Rs 1 lac per annum the details of PAN card of landlord should be given. Details in form 12BB should be filled for claiming HRA.