How to claim HRA on rent paid to parents

– Krishna Kumar

As per the provisions of section 10(13A) of the Income Tax Act, 1961, House Rent Allowance (HRA) exemption is not available where the house occupied by the assessee is owned by him or the assessee has not actually incurred the expenditure on payment of rent. . Based on the limited facts provided, we hold that the parents are the legal and financial owners of the house property and it is not owned by the assessee. Also, the assessee is actually paying rent to the parents.

As per the provisions of the Act read with the Income Tax Rules, 1962, the salaried persons are required to furnish the particulars/evidence specified in Form 12BB to the employer in respect of claiming the specified exemptions/deductions. For HRA exemption, an individual has to enter his/her employer, name, address and PAN (where the total annual rent paid) 1 lakh) of the landlord.

Further, as the employer has an obligation to withhold appropriate taxes from the employee, they are bound to collect sufficient documents to verify the claims of exemptions/deductions made by the employee. While there is no specific list of prescribed documents, the employer can also ask for details like rent agreement, rent receipt, mode of payment, etc., before allowing this deduction. In the absence of documents, this deduction can be denied at the tax withholding stage. If this is not allowed, then based on the facts and merits of the case, HRA deduction can be claimed at the time of filing income tax return. However, please note that this may be further scrutinized by the tax authorities.

If the tax return is selected for scrutiny, the tax officer may also call for documentary evidence (as he deems fit) in respect of the HRA claimed. Hence, it is advisable to maintain the following documents for HRA claim:

• Registered and notarized rental agreement, as applicable

•Rent Receipts

•Payment through banking channels

• Traceable to cash payments / specific withdrawals from bank accounts backed by known sources

•Disclosure of rental income in the ITR of the landlord (including PAN of the landlord)

It is pertinent to note that claiming HRA exemption in respect of rental payments made to parents/spouse/relatives may lead to litigation, thus sufficiently helpful to substantiate the genuineness of such transaction. Maintaining documentation is important.

Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.