How to claim HRA when living with parentsJust because you stay with your parents does not mean you cannot claim HRA and does not mean that you have to stay for free. You are legally allowed to pay rent to your parents, brother, and other relatives provided they own the house. However, to prevent any legal inefficiencies, you should have a signed rental agreement, rent receipts, and must have paid monthly rent to your parents. Even though paying rent to your parents and claiming HRA appears enticing, a few points should be considered before claiming HRA when living with parents.
Your parents will have to show the rent you pay them as rental income. So, you need to consider the tax slab of your parents before deciding to pay rent to them. If the property is owned in the joint name, the rent amount can be divided between both your parents. Your parents can also deduct property tax and claim a 30% standard deduction on the rental income.
Do Everything LegallyIt is imperative that you do everything legally by adhering to all the rules & regulations. The income tax department takes up three per cent of returns filed each year for scrutiny. If there is a mismatch, the concerned officials can demand proof under section 143(3) of the Income Tax Act. If it is found that you had underreported your income to lower your tax burden, a 200 per cent fine of the tax payable on the misreported income can be levied on you.
Your employer is also responsible for misreporting of your income as a declaration of HRA has been standardised for organisations with the introduction of 12BB.
While there are tools available at the disposal of the income tax department to prevent misreporting of income, you have the right to claim HRA by paying rent to your parents. It is completely legal, and you will not face any penalty. You have to follow the procedures mentioned earlier and do everything as per the book.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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