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The most common type of allowance a salaried person receives is House Rent Allowance (HRA). Those who live in a rented property can maximize their tax savings by claiming a deduction of HRA from their salary. However, many salaried individuals stay with their parents. Then arises a question about how to claim HRA if you live with your parents. The simple answer is that people who live with their parents can pay rent to their parents and save tax on HR. In this blog, we will find out how.
HRA stands for House Rent Allowance. Salaries of employees are structured with various components allocated for different expenses. HTA is one such allowance. HRA can be predetermined or determined through a special agreement between you and your employer. HRA constitutes a part of the earnings the employer grants to meet the costs linked with leased housing. The option to get an exemption on HRA is available exclusively if you reside in a rented house. The exemption of HRA falls within the provisions of Section 10(13A), read with Rule 2A of the Income Tax Act, 1961.
Example: 23-year-old Abhishek resided in New Delhi with his parents. His office was in Noida, and he used to commute daily to his office from New Delhi. Abhishek has recently started working, and his employer asked for tax saving declarations for FY 2019-20 to calculate TDS on salary. Abhishek’s colleagues living in a PG in Gurgaon were submitting rent receipts to claim HRA. HRA is paid to them as a part of their salary. However, Abhishek was unsure if he could claim HRA 1 since he lived with his parents. The details of their salary earned by him is as follows:-
Now, let’s find out how much HRA will be exempt if Abhishek decides to pay rent to his parents:-
Revised Taxable Salary
The rent paid to Abhishek’s father will be included in his father’s total income.
Let’s consider Case 1, where Abhishek decides to pay his father a sum of INR 12,000 monthly rent. His father’s rental income is INR 1,44,000 for the financial year. Apart from this, his father has an interest income of INR 3,00,000. The age of his father is 62 years.
Let’s find out the taxable income of Abhishek’s father before receiving rent and after receiving rent from Abhishek.
Total tax saved as a family = INR 17,628 – INR 5,132 = INR 12,496.
It is concluded that HRA is an effective tax-saving tool for many people even when they don’t live in a rented house. Every salaried person receives a house rent allowance as a part of their remuneration specified in the company contract. The government permits a tax deduction on those rents per section 10(13A) of the Income Tax Act.
Yes, any rent paid to the parents shall be eligible for the benefit of HRA tax exemption.
Yes, you can become a tenant at your parent's house, pay rent to your parents, and claim that rent under section 80GG deductions.
The following documents are needed to claim a deduction under section 80GG:i. Rent receiptsii. Rent agreementsiii. Declaration in Form 10BAiv. PAN of the Landlordv. Other supporting documents
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