Pay Rent To Parents To Claim A Deduction

You can claim HRA deduction for rent paid to your parents. Most of the salaried people get an allowance for taking care of the rent that they pay for their home. This is called House Rent Allowance, or HRA. You can claim these benefits even if you have rented out the house you have purchased through a home loan, and are yourself living in another rented accommodation. The city where you own a house and the city where you work also has no significance: There can be different cities, or can be the same. HRA gets special treatment in income tax laws and is exempt from income tax to a certain extent. Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it.

Rent to parents

If you are paying rent to your parents and you are getting the receipt for the same, you can claim a deduction. But remember House must be on their name or he/she must be authorized to receive rent on the property. It would be advisable for the landlord, in this case your parent, to declare this income in his/ her personal Income Tax return. This will prevent any litigation in the future.

Points to keep in mind

• You pay rent to parents.
• You are getting the receipt for the same.
• Your parents would need to declare this income in their IT returns.

Conditions for HRA

The deductions on HRA are eligible under Section 10(13A) of the Income Tax Act and will depend on certain laws. An individual can claim an HRA exemption only if the following three conditions are satisfied:

• An HRA allowance is received as part of the salary package.
• If one is staying in a rented accommodation and paying rent for it.
• The rent exceeds 10% of the salary.

Rent receipt is enough to claim the HRA exemption, but according to Income Tax Act, HRA exemptions are only available on submission of rent receipts and the rent agreement. Another factor that effects the tax exemption is the place where you live. If one resides in a metro city Delhi, Bombay, Kolkata or Chennai, he is eligible for a deduction of up to 50% of the salary or else the deduction is 40%.

The tax benefits on home loan and HRA can be claimed together by an individual if he fulfills the eligibility criteria on deductions relating to home loan and HRA. It should be understood that deduction on home loan and HRA benefits are two different issues under the Income Tax Act.

The only condition to claim HRA is that one should be paying rent for the roof over one’s head. You can claim these benefits even if you have rented out the house you have purchased through a home loan, and are yourself living in another rented accommodation. However, if you pay no rent either because you stay in a rent-free accommodation or live with your family or in your own house, you will not get this benefit. A salaried employees drawing house rent allowance up to Rs.3000 per month will be exempted from giving rent receipt to DDO.

If you are paying rent to your parents and you are getting the receipt for the same, you can claim a deduction. But if you are paying rent to your spouse and you are getting the receipt for the same, you cannot claim a deduction. The relationship between a husband and wife is not commercial in nature. After all, a husband and wife are supposed to stay together. Hence, payment of rent to a spouse may not be accepted by the income tax authorities. They may view this as a sham transaction to avoid tax.