How to claim House Rent Allowance in upright manner for rent paid to parents
Want to learn how you can claim deductions on rent paid to parents and reduce your tax liabilities? Sometimes HRA exemption gets rejected by the employer where rent is paid to parents. And employee gets perplexed as it increases tax outflow (TDS) towards the end of 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 owner of the property. If this property is held by your father/ mother or jointly held by your parents then and only then you should pay rent and claim it as HRA.
Rent Agreement: Many salaried individuals make a mistake of not entering into signed agreement with parents. And end up with disallowance 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 a taxpayer should make payment by transferring money to parents bank account rather than making 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 in this situation there are chances that your claim can get rejected by employer.
Reporting of rental income in tax return: You need to make sure that your parents on whose name property is held, reports 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.
