HRA or house rent allowance is the most common allowance received by the salaried. Those who live on rent can maximize on saving tax by claiming a deduction for HRA from the salary.
However many salaried or self-employed individuals stay with their parents. Are you unsure about how to claim HRA if you live with your parents? Those who live with their parents, can pay rent to their parents and save tax on HRA.
How to claim HRA by paying rent to your parents?
- You can pay rent to your parents if you are staying with your parents.
- This should be done by transferring the money (rent) to their bank account or pay via a cheque. This way you will be able to claim your HRA deduction properly. Rent paid in cash disqualify assessee from claiming HRA Deduction.
- Since rent is paid to owners, the property must be owned by your parents. It may be owned by one or both of your parents. So, you can deposit the money to any one of the parents in case of joint house ownership, or to the parent who is the legal owner of the house.
- Remember that you cannot be an owner or co-owner of this property since you cannot claim tax exemption on rent paid to yourself.
Documents required to claim the HRA while staying with parents
- Rent agreement and rent receipts – Usually employers ask for a copy of the rental agreement for their records. They can also request submission of rent receipts to allow you HRA exemption.
- You can enter into a simple rent agreement with your parents.
- You can prepare rent receipts and submit them to your HR/payroll department.
- It is important to keep proper records in case the assessing officer ask for them.
HRA claimed is taxable for parents
- Rent paid by you to your parents shall be taxable for them.
- The rental income paid by you is to be reported under the head ‘income from house property’ in their Income tax return.
- However, they can claim property taxes paid by them and also claim a 30% standard deduction from this rental income.
Benefits of claiming HRA while staying with family
- Save tax as a family – By submitting rent receipts and paying it, you will be able to claim exemption on HRA.
- Your parents can deduct property taxes and also claim 30% standard deduction on the rental income.
- If they are in a lower tax bracket than you, the family can save tax as a whole.
- If they are more than 60 years old, they will also enjoy a higher minimum income exemption limit (Rs.3 lakh for those who are aged above 60 years old and Rs.5 lakh for those who are aged above 80 years old).
- In case they do not have any taxable income, you will be able to save significant tax as a family.
Frequently Asked Questions
I could not submit receipts on time and have not claimed HRA through my employer?
If you are not able to submit the rent receipts in time to your employer and your employer deducts TDS on HRA, you’re still covered. HRA exemptions can be claimed at the time of filing your income tax return. You can adjust your total taxable salary with the HRA exemption amount while filing your return. Do remember to keep your proofs (rent receipts and rent agreement) safe, in case the assessing officer asks for them later.
Note: Rent Paid to Spouse is not eligible for HRA Deduction.