Living with Parents? Here’s How You Can Still Claim HRA Benefits
If you’re earning a salary and living in a rented home, you can benefit from House Rent Allowance (HRA) under Section 10(13A) of the Income Tax Act, 1961. Surprisingly, you can still claim this allowance even if you’re residing with your parents. Here’s how it works:
Understanding HRA
House Rent Allowance (HRA) is a significant part of many employees’ salary packages and offers substantial tax benefits. To claim HRA, you must incur rent expenses. Interestingly, this also applies if you live in a house owned by your parents. By contributing to household expenses or paying rent to your parents, you can claim HRA.
Conditions for Claiming HRA While Staying with Your Parents
- House Ownership: The house must be owned by one or both of your parents. You must pay rent to them, creating a landlord-tenant relationship.
- Proof of Rent Payment: Strong proof of rent payments, such as bank transfers or cheque payments, is essential.
- Rental Agreement: A rental agreement with your parents, the homeowners, is required.
- Parents’ Taxable Income: The rent your parents receive is taxable under ‘income from house property.’ They can claim property taxes paid and a 30% standard deduction on this rental income. If your parents are in a lower tax bracket than you, the family can save on taxes. Parents over 60 benefit from higher income exemption limits.
Calculating HRA
The amount of HRA you can claim is determined by the least of the following three criteria:
- Actual HRA Received: The HRA provided by your employer.
- Percentage of Salary for City Type:
- 50% of the Basic Salary and Dearness Allowance (DA) for metro cities (Delhi, Mumbai, Kolkata, Chennai).
- 40% for non-metro cities.
- Excess of Rent Paid Over 10% of Salary: Total rent paid minus 10% of the Basic Salary and DA.
Example Calculations
Case Study 1: Ayushi in Mumbai
- Annual Basic Salary + DA: ₹4,50,000
- Monthly Rent Payment: ₹2,40,000
- Actual HRA Received: ₹2,00,000
Calculations:
- Actual HRA Received: ₹2,00,000
- 50% of Basic Salary + DA for Metro Cities: ₹2,25,000
- Rent Paid Minus 10% of Salary + DA: ₹2,88,000 – ₹45,000 = ₹2,43,000
Ayushi can claim the least amount, ₹2,00,000, as HRA exemption.
Case Study 2: Anand in Chandigarh
- Basic Salary + DA: ₹4,00,000
- Annual Rent Payment: ₹1,20,000
- Actual HRA Received: ₹1,30,000
Calculations:
- Actual HRA Received: ₹1,30,000
- 50% of Basic Salary + DA for Non-Metro Cities: ₹2,00,000
- Rent Paid Minus 10% of Salary + DA: ₹1,20,000 – ₹40,000 = ₹80,000
Anand can claim the least amount, ₹80,000, as HRA exemption.
Documents Required
- Rent Receipt: For monthly rent above ₹3,000, including details of the payment, rental period, property address, and landlord’s signature.
- PAN of the Landlord: If annual rent exceeds ₹1 lakh, provide the landlord’s Permanent Account Number.
Important Notes
- Only individuals with income from salary can claim HRA.
- HRA cannot be claimed if the house is registered in your spouse’s name.
- HRA benefits are not available under the New Tax Regime.
- If posted in a different city, you can claim both HRA and home loan deductions.
- If HRA is not part of your salary, you can claim deductions under Section 80GG.
By understanding and meeting these conditions, you can optimize your tax savings even when living with your parents.
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