Every salaried person is provided with house rent allowance (HRA) as a part of emoluments specified in the company contract. If a person lives in a house which is not owned by him/her and he/she pays rent to the owners, the government allows a tax deduction on such rent under section 10(13A) of the Income Tax Act, 1961. Those who live in rented homes and pay monthly rent can save tax under HRA.
You can claim HRA deduction equivalent to the least of the following:
- Actual rent paid
- Basic pay minus 10 per cent of rent paid
- 50 per cent of the salary, if staying in a metro or 40 per cent of the salary, if staying in a non-metro
Documents required for claiming 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 also can print these receipts and submit them to your HR/payroll department. You can also download them and save them on your computer.
- It is important to keep proper records in case the assessing officer asks for them.
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.
Rules to be aware of
1) You can pay rent to your parents and claim HRA deduction if your parents own that property. But they will have to show the rent as income from house property. But if you are staying with your parents in a rented accommodation and they are paying the rent, you can’t claim the HRA deduction.
2) You can’t pay rent to your spouse and claim HRA deduction.
3) You can claim both HRA and home loan deduction of ₹ 1.5 lakh against principal repayment and ₹ 2 lakh against interest paid, if you are staying in a different city due to job posting.
4) Even if HRA is not part of your salary, you can claim an HRA deduction under Section 80GG. This Section is applicable for those who don’t receive HRA as part of their salary and self-employed individuals.
5) You can claim HRA under this Section by filling up a Form 10BA. You can only claim HRA under this Section only if you are staying in a rented accommodation and paying rent. This house shouldn’t be co-owned by you and also you don’t own any house in the same city.
How to Claim HRA when Living with Parents
Just because you stay with your parents does not mean you cannot claim HRA and does not mean that you have to stay for free. You are legally allowed to pay rent to your parents, brother, and other relatives provided they own the house. However, to prevent any legal inefficiency, you should have a signed rental agreement, rent receipts, and must have paid monthly rent to your parents. Even though paying rent to your parents and claiming HRA appears enticing, a few points should be considered before claiming HRA when living with parents.