HRA exemption: Are you eligible if rent paid to your father?

Employees receive a House Rent Allowance (HRA) to cover the cost of paying rent for a residential accommodation. HRA is a portion of their salary and can be exempted from taxes, subject to certain conditions and limits defined by tax regulations. The purpose of HRA is to provide financial relief to employees for their housing needs. If you are an employee who receives HRA from your employer, there are specific regulations that govern the tax exemption for HRA. These regulations can be found in Section 10(13A) of the Income-tax Act, 1961, along with Rule 2A of the Income-tax Rules, 1962.

According to these provisions, taxpayers can avail an exemption on their HRA, provided they meet the following conditions:

Exemption Conditions:

The taxpayer must actually incur rental payments for the residential accommodation they occupy.

The residential accommodation must not be owned by the taxpayer.

The taxpayer must have incurred actual expenditure on rent payments for the said accommodation.

When Is HRA Exemption Not Allowed?

HRA exemption is not allowed if the taxpayer has not actually spent money on rent for the residential accommodation they occupy.

In the scenario where your parents are the ones renting the accommodation and responsible for paying the rent to the landlord, there is no formal agreement between them and the landlord. Your intention is to reimburse your parents for these rental payments. However, this situation raises concerns about claiming the HRA exemption, as the rent is not directly paid by you to the landlord. Furthermore, payments made to relatives, including parents, spouse, or siblings, have been the subject of legal disputes and may be challenged.

To ensure the legitimacy of these transactions, it is crucial to maintain proper documentation, as reported by Mint. This includes obtaining appropriately stamped rent receipts, registering or notarising rental agreements, keeping bank statements that reflect the rental payments, obtaining the landlord's PAN details, accounting for applicable TDS deductions from the rent, and maintaining other relevant records. It is also important to carefully consider the tax implications on the rental income received by your parents.

If you opt to claim the HRA exemption through your monthly payroll, the approval of this exemption during the TDS process will depend on your employer's specific policies regarding the required documentation. If your employer requires additional documentation, you may need to claim the HRA exemption when filing your tax return. Additionally, it's important to understand that the HRA exemption does not apply to your taxable income if you have chosen the new tax regime.