If you are salaried person and you get House Rent Allowance (HRA) from your employer, then you can save your income tax by claiming HRA Tax Exemption.
Do you want to know how to save? Read this article completely.
How to avail HRA Tax Exemption while staying in ancestral home?
Salaried employees get tax exemption on paying house rent. This is called HRA Tax Exemption. But, do you know that you can take advantage of this tax exemption even while staying at your ancestral home (parents’ house)? If you don’t know, then this article is for you –
What does the Income Tax Law say about parents’ homes?
According to income tax rules, if you are an adult and not dependent on your parents, then you will be considered as a separate taxpayer. Your income calculation will vary and tax exemption facilities can also be taken separately.
According to Section 10 (13A), you can get the benefit of tax deduction on house rent even if you are living as a tenant at your ancestral house (parent’s house).
But, remember, you cannot take advantage of this tax exemption if the house is in the name of your wife or your husband (spouse). Because according to the relationship, both of you should stay together.
Conditions for HRA Tax Exemption
To claim HRA Tax Exemption while staying in the ancestral house, you have to fulfill the following conditions-
House should be in the name of your parents
You have to show yourself as a tenant in your parents’ house. Since the rent has to be paid by the owner of the house, your parents must also own the house. The house can be in the common name of both and also in the name of one.
Send money directly to bank account or pay by cheque
You must have strong proof that you have paid the rent to your parents. For this, you can transfer the house rent directly to their bank account. You can also pay rent through cheque. In order to claim tax exemption on HRA, these transaction records will be used.
Keep the Rent Agreement and Rent Receipts as proof
You should also have sufficient documents (such as rent agreement, rent receipts, etc.) to show yourself as a tenant. To claim tax exemption on HRA, your employer may ask you for rental agreement or rent receipts. In future, these proofs can also be useful in income tax inquiry.
Rent will be included in your Parents’ Income
As a tenant in your parents’ house, whatever rent you pay to your parents will be considered their income. The tax will be calculated according to their tax slab. This means that this measure of tax savings will be beneficial only when your parents’ taxable income is low. Generally it happens the same.
How much tax will you save on House Rent?
Three facts are considered for tax exemption on house rent allowance.
- Total HRA received
- 40% of your salary (50% if you live in metro city)
- Actual Rent paid minus 10% of your salary
The amount which will be the least, you can use it for tax exemption on HRA.
Note – Salary includes the basic salary, the dearness allowance and the commissions.
Let’s understand with an example.
Mr. Paras Singla, employed in Delhi, is living in his parent’s house as a tenant. He pays a monthly rent of ₹ 8,000/- by cheques. He receives basic salary of ₹ 25,000 and dearness allowance of ₹ 5,000 with a House Rent Allowance of ₹ 10,000 per month from his employer.
|Total HRA received||₹ 10,000 x 12||₹ 1,20,000|
|50% of Salary (as he lives in Delhi)||50% of ₹ 3,60,000||₹ 1,80,000|
|Actual Rent paid minus 10% of Salary||(₹ 8,000 x 12) – 10% of ₹ 3,60,000||₹ 60,000|
|Calculation of Salary = (₹ 25,000 + ₹ 5,000) x 12 = ₹ 3,60,000|
In this case, Mr. Paras Singla will claim HRA Tax Exemption of ₹ 60,000 as it is the least amount.
More tax savings as a Family
On paying the rent to parents, you get the benefit of tax exemption on HRA itself. Your parents can also take advantage of tax exemption therein.
Tax will be easier to save if your parents are Senior Citizen (over 60 years of age) or Super Senior Citizen (above 80 years of age). Because, senior citizens do not face any tax on income up to ₹ 3 lakh and super senior citizens up to ₹ 5 lakh.
A 30% standard deduction is provided directly on rent income anyway. This exemption is given in view of the expenditure on the maintenance of the property etc. Your parents will also be able to take advantage of this.
So friends, this was the way to claim HRA Tax Exemption in income tax, even while staying at your parents’ house. You have to collect some documents (rent agreement, rent receipts etc.) for future references. We hope you will get benefit from this article. Save your tax and share this article with your friends and relatives.