Homeowner can claim house rent allowance while living in rented house

If you pay rent to spouse or parents, maintain proof for HRA claim

Income-tax returns sometimes include incorrect claims for house rent allowance (HRA) and home loan deductions. Such incorrect claims can trigger a notice from the tax department.
 

Says Suresh Surana, founder, RSM India: “HRA is a special allowance granted to an employee by the employer to meet the expenditure, that is rent payment, incurred on residential accommodation occupied by the employee.” Employees can claim HRA up to the prescribed threshold under Section 10(13A) of the Income-Tax (I-T) Act, 1961 under the old tax regime.
 

Rules governing HRA exemption
 

HRA exemption is the least of the following amounts: the actual HRA received; 50 per cent of the basic salary plus dearness allowance (DA) for those living in metros like Mumbai, Calcutta, Delhi, or Chennai; 40 per cent of basic salary plus DA for those living in non-metros; in any other case, rent paid in excess of 10 per cent of the basic salary. Next, let us turn to a few special cases where taxpayers need to be careful.
 

Own a home but live on rent
 

Many people live on rent even though they own a house. Concerning the HRA rules for them, Maneet Pal Singh, partner, I.P. Pasricha & Co, says: “An assessee can claim HRA while owning a house if they genuinely pay rent for their current accommodation and do not occupy the house they own.”

 

Claiming HRA & interest deduction
 

An individual can claim deductions for both HRA and interest on a home loan simultaneously. Says Kishore Kunal, a Supreme Court advocate: “The indiv-idual must possess the requisite documents like a rent agreement, home loan statement, interest statement, which prove that the residential accommodation and the owned house are different premises.” This benefit can be availed if you have bought a house on loan but reside in a rented accom-modation in another city, or even in the same city, due to work or children’s schooling, provided your case is genuine. Another case could be where a person has taken a home loan for an under-construction property and lives elsewhere on rent. Says Avinash Polepally, senior director, Clear: “In the case of an under-construction property, you can only claim the home loan interest deduction over five years in equal instalments starting from the year in which the construction is completed.” Sometimes, people rent the house they have bought with a home loan and live in rented accommodation elsewhere. Says Polepally: “You will need to show rental receipts from your own house to calculate income-tax liabilities.”
 

Submit landlord’s PAN
 

If you have rented a house and pay over Rs 1 lakh annually, provide the landlord’s permanent account number (PAN) or the landlord must sign a self-declaration stating they do not have one.
 

Rent paid to family
 

An individual can claim HRA even if rent is paid to parents. “This can be done as long as the recipient declares the rent as their income and pays the applicable tax,” says Vipul Jai, partner, PSL Advocates and Solicitors. Rent payments should be supported by a proper rental agreement and proof of payment. Section 10(13A) nowhere explicitly prohibits the payment of rent to family members. 
 

Says Surana: “Payment of rent to family members, especially spouses, has  been a contentious issue since the relationship between the payer and the payee is of a non-commercial nature.” Such rent transactions may be scrut-inised by revenue authorities and litigation is possible. Surana says a recent ruling by the Delhi Income Tax Appellate Tribunal said that a taxpayer paying rent to his/her spouse is entitled to claim HRA benefit under relevant sections and within prescribed limits. Taxpayers should maintain necessary documentary evidence to substantiate that the transaction is genuine.
 

Live on rent but don't get HRA
 

If you live on rent but do not receive HRA from your employer, you cannot claim an HRA exemption. Says Aashwyn Singh, associate, SKV Law Offices: “You can claim deduction under Section 80GG, subject to certain conditions.”