CANYOU CLAIM HRA EXEMPTION ON RENT PAID TO YOUR PARENTS OR SPOUSE ?

Income-tax returns sometimes include incorrect claims for house rent allowance (HRA) and home loan deductions. Such incorrect clalms can trigger a notice from the tax department.
Says Suresh Surana, founder, RSM
India: “HRA isa special allowance granted to an employee by the employer to meet the expenditure, that is rent payment, incurred on residential accommodation occupied by the employee.” Employees can claim HRA up to the prescribed threshold under Section 10(13A) of the Income-Tax(I-T) Act, 1961 under the old tax regime.
Rules governing HRA exemption
HRA exemption is the least of the following amounts: the actual HRA received; 50 per cent of the basic salary plus dearness allowance (DA) forthose livingin metros like Mumbai, Calcutta, Delhi, or Chennai: 40 per cent ofbasic salary plus DA for those living in non-metros; in any other case, rent paid in excess of 10 per cent of the basic salary.
Next, let us turn to a few special cases where taxpayers need to be careful.
Own a home but live on rent
Many people liveon rent even though they own a house.
Concerning the HRA rules for them, Maneet Pal Singh, partner, I.P. Pasricha & Co, says: “An assessee can claim HRA while owning a house if they genuinely pay rent for heir current accommodation and do not occupy the house they own.”
TAX CALCULATOR
DABC lives in Gurgaon and pays a rent of 710,000 per month; he gets an HRA Of 715,000 while his basic salary is 740,000
> HRA exemption will be 76,000
ABC’s HRA exemption will be the minimum of these three components:
> HRA received
40% of basic salary since he lives in
＝〒15,000
Gurgaon = 716,000
> Rent paid – 10% of basic = €10,000 – 74,000 = 76,000
Remaining HRA 01715,000 – 76,000 = 79,000 will form part
of his taxable income under ‘Salaries on account of HRA’
Source: Clear
Claiming HRA & interest deduction In individual can claim deductions for oth HRA and interest on a home loan imultaneously. Says Kishore Kunal, a upreme Court advocate: “The indiv-lual must possess the requisite ocuments like a rent agreement, home an statement, interest statement, hich prove that the residential commodation and the owned house different premises.” This benefit can availed if you have bought a house on n but reside in a rented accom-dation in another city, or even in the same city, due to work or children’s schooling, provided your case is genuine. Another case could be where a person has taken a home loan foran
under-construction property and lives elsewhere on rent.
Says Avinash Polepally, senior
director, Clear: ” In the case of an under-construction property, you can only claim the home loan interest deduction over five years in
YOUR MONEY
equal instalments starting from the year in which the construction is completed.”
Sometimes, people rent the
house they have bought with a home loan and live in rented accommodation elsewhere. Says Polepally: “You will need to show rental receipts from your own house to calculateincome-tax liabilities.”
Submit landlord’s PAN
If you have rented a house and pay over
¿1 lakh annually, provide the landlord’s permanent account number (PAN) or the landlord must sign a self-declaration stating they do not have one.
Rent paid to family
An individual can claim HRA even if rent is paid to parents. “This can be done
as long as the recipient declares the rent as their income and pays the applicable tax,” says Vipul Jai, partner, PSL Advocates and Solicitors. Rent paymentsshould besupported by a proper rental agreement and proofof payment. Section 10(13A) nowhere explicitly prohibits the payment of rent to family members.
Says Surana: “Payment of rent to family members, especially spouses, has been a contentious issue since the relationship between the payer and the payee is of a non-commercial nature.” Such rent transactions may be scrut-inised by revenue authorities and litigation is possible. Surana saysa recent ruling by the Delhi Income Tax Appellate Tribunal said that a taxpayer paying rent to his/herspouse is entitled to claim HRA benefit under relevant sections and within prescribed limits.
Taxpayers should maintain necessary documentary evidence to substantiate that the transaction is genuine.
Live on rent but don’t get HRA
If you liveon rent but do not receive HRA from your employer, you cannot claim an HRA exemption. Says Aashwyn Singh, associate, SKV Law Offices: “You can claim deduction under Section 80GG, subject to certain conditions.”