Many salaried employees in India live with their parents while working in the same city, but not everyone knows that paying rent to them could help save tax. Under certain conditions, employees can claim House Rent Allowance (HRA) benefits even when the property belongs to their parents.
However, the arrangement must meet specific tax requirements, and simply transferring money to your parents every month does not automatically make you eligible for the exemption.
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How Does It Work?
If your parents own the house that you reside in, you can pay rent every month and avail of the HRA exemption u/s 10(13A). However, this should be a genuine case. Just depositing money to your parents and terming it as rent would not suffice.
For example, imagine you get a salary and HRA amounting to Rs 15,000 every month. If you are living in your father's house and paying Rs 10,000 as rent every month, you can claim HRA exemption based on the calculation.
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What Should You Keep in Mind?
Before you can avail yourself of this exemption, ensure that you:
- Make your rent payments on time through a bank transfer or any other traceable method.
- Maintain appropriate rent receipts.
- Have a valid rent agreement, preferably.
- Ensure that the property belongs to your parents.
- Ensure that your parents have declared the rental income in their income tax returns, if required.
- Additionally, note that if you choose the new tax regime, you cannot claim HRA exemption.
Is It Really Worth It?
It is a good way of saving on taxes, particularly when your parents are in a lower tax bracket. Nevertheless, the money earned from the rent will be treated as taxable income by the parents.
Conclusion
Rent paid to your parents is not a tax loophole if it is real. This is one way you can manage your domestic budget and even reduce your tax burden. Just maintain proper records and follow the tax rules to avoid unnecessary trouble.
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