Individuals having income from salary residing on rent can claim tax allowance namely House Rent Allowance (HRA) under Section 10(13A) of the Income Tax Act, 1961. But are you aware of the fact that you, as an individual having income from salary  can take advantage of this allowance while staying at your parents’ home? To know how, read this blog!
HRA Provisions Under The Income Tax Act
As per the Income Tax laws, if the individual is of the age of majority i.e., 18 years and above, and is not dependent upon his parents, then he is considered as a separate taxpayer in the eyes of law. The income calculation varies from income to income and therefore, the amount of HRA will also vary.
Conditions for Claiming HRA
Conditions for claiming HRA even if you are staying with your parents’:
House should be in the name of the parent(s)
The first & foremost condition to claim HRA is that the house should be in the name of either or both of the parents. And, the individual having income from salary must pay the rent to the owner. Accordingly, there will be a relation of landlord and tenant.
The payment of rent should be sent directly in bank account or cheque in the name of parent(s)
In order to claim the exemption of HRA this way, the individual must have strong proofs of rent payments to the parent(s). In such a case, the bank transfers or cheque transfers plays an important role.
You need to enter into rent agreement with your parent(s)
In order to claim HRA while living in the parents’ house, the individual must enter into rent agreement with his or her parent(s), who are the owner of the house.
The rental income will have inclusion in the income of your parents
The rent payments to the parents is taxable for them under the head ‘income from house property.’ They can claim property taxes paid by them and also claim a 30% standard deduction from this rental income.
Also Read: Who Should File Form 15G Or Form 15H?
If the parents are in a lower tax bracket than the individual claiming the HRA exemption, 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 lacs for those who are above 60 years of age and Rs. 5 lacs for those who are above 80 years age). In case they do not have any taxable income, the individual will be able to save significant tax as a family.
How much tax can be saved on House Rent?
The amount of HRA that can be claimed as an exemption is the least of the following:
– Actual HRA received
– 50% of (Basic Salary + Dearness Allowance) for metro cities or 40% (Basic Salary + Dearness Allowance) of salary for non metro cities
– Rent paid (-) 10% of salary
Documents required to claim House Rent Allowance
– Rent receipt, if the rent exceeds ₹3,000/month.
– PAN of the landlord, if the rent exceeds ₹1 lac/annum.
Illustration
Case 1: Karan is an individual having income from salary. He is working and residing in Delhi
Basic salary + Dearness Allowance = ₹3,00,000/-
Rent payment = ₹1,60,000/-
Actual House Rent Allowance (A) = ₹1,40,000/-
50% of salary for metro cities (B) = ₹1,50,000/-
Rent payment (-) 10% of (Basic Salary + DA) (C) = ₹1,30,000/-
Tax exemption (minimum of A, B, C) for individual having income from salary in metro city = ₹1,30,000/-
Case 2: Arjun is an individual having income from salary. He is working and residing in Jalandhar
Basic salary + Dearness Allowance = ₹3,00,000/-
Rent payment = ₹1,00,000/-
Actual House Rent Allowance (A) = ₹1,10,000/-
50% of salary for metro cities (B) = ₹1,20,000/-
Rent payment (-) 10% of (Basic Salary + DA) (C) = ₹70,000/-
Tax exemption (minimum of A, B, C) for individual having income from salary in non-metro city = ₹70,000/-
Important Note
Claim HRA even for staying at parents house: Some important points Â
– Individuals having income from salary can only claim HRA.
– One cannot claim HRA, if the house is in the name of the spouse because as per the Income Tax Act, the husband and the wife live together.
– HRA is not available under the New Tax Regime
– You can claim both HRA and home loan deduction of ₹ 1.5 lakh against principal repayment and ₹ 2 lakh against the payment of interest, if you are staying in a different city due to job posting.
– Even if HRA is not part of your salary, you can claim deduction under Section 80GG. This Section is applicable for those who do not receive HRA as part of their salary and self-employed individuals.
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