House Rent Allowance (HRA) is a component of an employee’s salary provided by employers to cover the expenses of their rented accommodation. Since HRA is considered a part of the salary, it is subject to taxation. However, it can be exempted from taxes based on certain conditions and limits set by income tax regulations. Employees who receive rent allowances directly from their employers and bear the rent expenses are eligible for HRA exemption.
But there is often confusion regarding individuals who indirectly pay rent to their parents. To understand this in detail, let’s delve into the specifics.
Who is eligible for HRA exemption?
According to income tax regulations, taxpayers who actually incur rental payments for their accommodation and have formal documentation are allowed for tax exemption.
What if the rent is paid to parents?
If a taxpayer resides with their parents and the parents are responsible for paying the rent, or if the taxpayer indirectly contributes to the parents’ rent without a formal agreement between the parents and the landlord, concerns may arise regarding the eligibility for claiming the HRA exemption. Since the rent is not directly paid by the taxpayer to the landlord, it becomes necessary to establish the authenticity of such transactions.
Transactions involving relatives can also be subject to scrutiny. To ensure the legitimacy of rental transactions involving parents, taxpayers must maintain proper documentation. This includes obtaining rent receipts with appropriate stamps, notarised rental agreements, and maintaining bank statements that reflect the rent payments, among other records, as reported by Mint.
Can salaried taxpayers claim HRA exemption?
Yes, salaried taxpayers have the right to claim tax exemption on their rental allowance through Section 10 (13A), Rule 2A of the Income Tax Act. However, they also need to adhere to their company’s policies when claiming HRA.
What about self-employed taxpayers?
Self-employed taxpayers can also claim HRA exemption by utilising the provisions under Section 80 GG of the Income Tax Act. This section provides income tax relief to individuals who are paying rent but have not received HRAs.
Source: Bureau
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