Income Tax Season: Can you save income tax by paying rent to your spouse? Know how to save up to Rs 1,80,000 tax through it

House Rent Allowance (HRA) tax exemption: Income Tax July 31, 2024, is the last date to file income tax return (ITR). Taxpayers use various ways to save tax. Some of the ways is to invest in long-term investment plans such as NPS, EPF, ELSS, Post Office Senior Citizen Scheme (SCSS), fixed deposits (FDs). Contributions in these long-term investment schemes can help you save up to Rs 1.50 lakh in a  financial year. However, there are also other ways to save tax. One of them is to get tax benefit through house rent allowance (HRA), and that too by paying rent to your wife. This method can be beneficial for those taxpayers who want to make a part of their salary tax free under HRA. Let us know how this method works and how much tax can be saved.
How to get benefit?

Rent agreement

First of all, you should make a valid rent agreement with your wife. The rent amount and other terms should be clearly written in it.

Proof of payment

The amount payable as rent should be paid via bank transfer or a cheque. This will ensure that you have proof of payment.

HRA claim

You can claim the amount given to you as HRA from your employer. While calculating HRA, three major things are taken into consideration:

The actual HRA that you get.

50 per cent of the rent paid (if you live in a metro city) or 40 per cent (if you live in a non-metro city).

Rent paid and the balance amount after deducting 10 per cent of your basic salary.

How much tax will be saved?

Suppose your monthly salary is Rs 1,00,000, which includes Rs 20,000 HRA, and you pay a monthly rent of Rs 25,000 to your wife.

In this situation...

Annual HRA: Rs 2,40,000
Annual rent payment: Rs 3,00,000
10% of basic salary: Rs 1,20,000
– Thus, the exemption in the form of HRA will be calculated as follows:
Annual HRA: Rs 2,40,000
Rent - 10 per cent of basic: Rs 3,00,000-Rs 1,20,000 = Rs 1,80,000
50 per cent of basic salary (in metro cities): 50 per cent of Rs 1,00,000 = Rs 6,00,000
Out of the above three, the minimum amount is Rs 1,80,000, which you can claim tax free as HRA.

Things to keep in mind

Genuine agreement
The rent agreement should be genuine and there should be no fraud behind it.
Proof of payment
Proof of payment in the form of bank statement or cheque payment is a must.
Rental income
Your wife will have to show rental income in her income tax return.

Paying rent to your wife can be a great way to save tax, but it needs to be done carefully and correctly. It is important to consult a tax chartered accountant before taking advantage of this.