The majority of us are aware that if we live in rented housing and receive HRA from our employers as part of our income, we can claim a deduction equal to the least of the following:
1. The actual rent that was paid
2. Basic wage less a ten percent rent payment
3. If you stay in a metro, you will receive 50% of your pay; if you stay in a non-metro, you will receive 40% of your salary.
However, many of us are unaware that we can also pay rent to our parents and spouse and claim tax benefits under the income tax laws.
Wife's rent payment:
The Delhi-based Income Tax Appellate Tribunal has held that the House Rent Allowance (HRA) exemption under the Income Tax (I-T) Act, 1961, cannot be disallowed because the assessee paid rent to his spouse. According to the judgement, the wife is a doctor with sufficient financial capabilities to purchase a home, as evidenced by her income tax return.
If a person's wife earns and the house is wholly owned by her, he is eligible for HRA exemption if he pays rent monthly and keeps receipts. However, if his wife does not work, he will be unable to claim this benefit because the husband and wife's salaries would be combined.
Taking care of your parents' rent:
Individuals who live with their parents and pay rent can also claim an HRA deduction. You must pay the rent by check or transfer the funds (rent) to their bank account in order to do so. You must, however, ensure that this property is owned by your parents. Because you can't claim tax exemption on rent paid to yourself, you can't be a co-owner or owner of this property. Furthermore, you must engage into a rent agreement with your parents and obtain monthly rent receipts.
For parents, the HRA claimed is taxed.
Your parents are responsible for paying the tax on the rent money you have paid. It will be shown as income from dwelling property on their tax return.
They can, however, deduct property taxes as well as a standard deduction of 30% on rental income.