Categories: Income Tax

CBDT Allowed HRA who pay rent to their parent, spouse/family

CBDT : Allowed HRA Exemption who pay rent to their parents, spouses/ family Members

For individuals that pay rent and live in rented housing, the Income Tax Act of 1961 provides the House Rent Allowance (HRA) as a way to reduce taxes. This clause also applies for individuals who rent to their parents, spouses, or other family members. However, these situations frequently have unique requirements and complications.

Conditions for Claiming HRA Deduction:

It’s important to fulfill all the conditions mentioned under Section 10(13A) to claim the deduction. Any misrepresentation or failure to meet these conditions might lead to tax scrutiny or penalties.

    • The individual must be a salaried employee.
    • HRA must be a part of their salary package.
    • The individual must actually incur expenses on rent for the house they reside in.
    • The house should not be owned by the employee himself/herself.

Amount of Deduction: The amount deductible is the least of the following:

      • Actual HRA received.
      • 50% of salary (for employees living in metro cities) or 40% of salary (for employees living in non-metro cities).
      • Rent paid minus 10% of salary.

The basic provision of House Rent Allowance specified for exemption under section 10(13A) of the Income Tax Act 1961. Tax Law allows salaried individuals to claim deduction for HRA under section 10 (13A). Said of House Rent Allowance deduction available is the least of the following amounts:

  • Actual House Rent Allowance received
  • 50% of [basic salary + Dearness allowance] for those living in metro cities (Mumbai, Delhi, Kolkata or Chennai)
  • 40% of [basic salary + Dearness allowance] for those living in non-metros
  • Actual rent paid (-) 10% of basic salary + Dearness allowance

As of last update in the Income Tax Act of 1961, the eligibility to claim HRA depends on various factors, including your relationship with the property owner and the actual payment of rent. House Rent Allowance is typically claimed by individuals who are living in rented accommodation and receiving a specific allowance for the same from their employer.

Important Point to be taken care while claiming HRA Exemption

In case Taxpayer is living with his own parents or spouse & paying them rent, He may still be eligible to claim House Rent Allowance, but there are certain conditions that need to be met specified to be fulfilling Under Section10(13A) the Income Tax Act of 1961.

  • Actual Payment of Rent: You should actually make the rent payments to your parents or spouse. The arrangement should not be just on paper; there should be a real transfer of funds.
  • Ownership by Parents/Spouse: The property should be owned by your parents or spouse. If you are paying rent to them for a property they own, you may be eligible for House Rent Allowance.
  • Genuine Rental Agreement: There should be a valid and genuine rental agreement between you and your parents or spouse. This agreement should specify the amount of rent to be paid, the duration of the rental, and other relevant details.
  • CBDT Circular 01/2019: As per CBDT (Central Board of Direct Taxes) Circular 01/2019, If rent paid exceeds INR 1,00,000/- per annum, it is compulsory for the salary employee to report Permanent account number of the landlord to the employer along with the following details as per income tax specified Form 12BB:-

o   Actual Rent paid to owner / landlord.

o   landlord Name

o   Address of landlord.

Other Point to be taken care while claiming HRA :

Few other points to be noted while claiming deduction &  fulfilling conditions mention U/s 10(13A) the Income Tax Act of 1961:

o   The employee must be a salaried individual & Salary employees must be paying rent for the residential accommodation.

o   The employee must not own any residential accommodation in the place where they are currently residing.

o   Salary Employees must have proof of rent payment, such as rent receipts or a rental agreement.

o   HRA deduction can only be claimed for the current FY.

o   Income Tax deduction cannot be claimed if the employee is also claiming a deduction for rent U/s 80GG.

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