Is a large part of your salary getting deducted in taxes since you stay with your parents or other family members and you are not able to claim HRA (house rent allowance) exemptions? The Income Tax Act in India provides such taxpayers an option to save taxes, albeit with some conditions.
Those staying with their family members can claim HRA tax deductions under Section 10 (13A) of the Income Tax Act if they actually pay rent to these family members and are able to provide a proof of the same.
How to claim HRA exemption on rent paid to family?
Show proof
Salaried individuals are required to show proof of their rent payments to their employers in Form 12BB for claiming exemptions/deductions. This means, employees have to submit rent receipts or rent agreement to claim such deductions.
Valid proofs of rent payment
While there is no specific list of documents prescribed by the I-T department for this purpose, your employer will ask for documents like rent agreement, rent receipts, mode of payment, etc., before allowing HRA deduction. Aside from rent receipts, you can also show payments via banking channels, cash payments backed by known sources/traceable to specific withdrawals from the bank account as a proof of rent payment.
Provide landlord details
To claim HRA on rent paid to a family members, you will have to provide the name, address and PAN of the landlord. PAN is only required if you pay more than Rs 1 lakh as rent in a year.
Can employer deny tax HRA exemption?
In case you fail to provide the proof of rent payment or fail to furnish the details sought, your employer is well within their rights to withhold the HRA exemption. However, you can still claim the deduction at the time of filing ITR. Be aware that the I-T Department, too, will probe the matter to its satisfaction before allowing the HRA deduction.
Tax implication on family
Be aware that the rent payment your family receives from you will be counted as their income under the head Income from House Property and will be taxed accordingly. The landlord will also have to disclose the rental income in his ITR.
Threat of litigation in case of fraud
Claiming HRA exemption for rent paid made to parents/spouse/relatives is prone to litigation. Make sure you have enough documentary proof to prove the genuineness of the payments. If you have made an arrangement of paying rent on paper, without actually staying at that place, the tax authorities may be able to prove that the transaction is not genuine.
See also: Tax precautions while paying rent to close relatives
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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