Rent at your parents’ place to avail the House Rent Allowance and save tax

• Taxpayers living with their parents can capitalise on the benefits under the Income Tax Act that allows tax deductions on house rents.
  
• This amount can be paid via cheque or bank transfers, in order to avail tax benefits.
  
• Under Section 80GG of the Income Tax Act, those who are self-employed can also claim tax deduction on the rent agreement.

House Rent Allowance (HRA) is offered to almost every salaried employee. Taxpayers who have been living with their parents too can capitalise on the benefits under the Income Tax Act that allows tax deductions on house rent.

This amount can be paid via cheque or bank transfers, in order to avail tax benefits. The employees will have to submit a rent agreement and rent receipts for HRA exemption.

According to the Income Tax law, house rent is to be paid to the owner of the property. Hence, in order to claim tax benefits on rent agreement, the housing property should be owned by the parents. "It is mandatory to furnish rent receipts to the employer for claiming HRA exemption for the monthly rent paid more than Rs. 3000 per month,” Pinky Khanna, Director of People Advisory Services, EY India told ET.

However, the rent that is paid to the parents is in turn taxable for them under the ‘income from house property.’ They can claim a standard deduction of 30% from the rent amount.

Under Section 80GG of the Income Tax Act, those who are self-employed can also claim tax deduction on the rent agreement. This is applicable for shared accommodation as well.

This is applicable to upto 50% of the employee salary, in case of metropolitan areas like Delhi, Mumbai, Calcutta and Chennai. While for the employees living in the non-metro cities, the HRA exemption will be 40% of the salary.

Even if the rent amount exceeds ₹1 lakh, the employees can claim it under the HRA — along with the PAN (Permanent Account Number) details of the owner and rent receipts — which is mandatory in such cases.

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