Claim House Rent Allowance in upright manner for rent paid to parents

Claim House Rent Allowance in upright manner for rent paid to parents

It has been observed that salaried individuals claim House Rent Allowance (HRA) exemption by paying rent to parents. However, sometimes HRA exemption gets rejected by the employer. Employee gets perplexed as it increases their tax outflow for the year. Exemption for HRA is not available if an employee resides in his own house or if the employee does not incur any expenditure on payment of rent. 

Following are the points to be considered while paying rent to parents for claiming House Rent Allowance exemption:

  • Property should be in the name of parents: You can only claim HRA exemption when you are paying rent to parents, who are owners. If this property is held by your father/ mother or jointly held by your parents only then you should pay rent and claim it as House Rent Allowance.
  • Rent Agreement: Many salaried individuals make a mistake of not entering into signed agreement with parents. Result? you end up with dis-allowance of HRA exemption. Hence, you should enter into rent agreement. Rent agreement should mention the premises which is rented out, amount of rent and terms of rental payment etc.
  • Actual Payment of Rent: Another important aspect is to make an actual payment to your parents. Payment of rent can be made monthly or at regular intervals as per the terms of the agreement. But you should make payment to parents via bank account rather than doing it in cash.
  • Residing in rented house: In order to claim HRA exemption, you should be residing in this rented house. You can only claim HRA when you physically reside in that property. In many cases it has been noticed that an individual is staying in another property near work place. And his family resides with parents. Here there are chances that your claim could get rejected.
  • Reporting of rental income in tax return: Make sure that your parents , report this rental income while filing their income tax return. Because there are cases where query has been raised by the tax department for not reporting rental income in tax return.

 


Visit HireCA.com Now