Exempt from HRA : Mumbai native Neeta Arora has been living in Bangalore for a year because of her work. She pays her father rent and resides in his apartment. Although Neeta’s company includes the HRA component in her CTC, she is uncertain if she is eligible for the HRA exemption, particularly because she is renting her father’s home. Others have the same question as Neeta, and the response is in the affirmative. If you live in your parents’ home, this guide will explain your eligibility requirements and how to apply for an HRA exemption.

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HRA: What is it?

In order to compensate the costs of rented housing, the employer provides the employee with a House Rent Allowance (HRA), which is a component of the CTC. Only employees who receive a salary are eligible to claim an HRA. Self-employed people are not eligible to get HRA.

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RA was only permitted under the previous tax system.

Since the new tax regime does not cover any exemptions other than the HRA exemption, anyone who wishes to claim one must choose the old tax regime.

• Contributions made into the National Pension Scheme (NPS) up to Rs 50,000
• Interest paid on house loans up to Rs 2 lakh.

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Qualifications for collecting HRA when family members get rent

Rent payments to one’s mother, father, siblings, spouse, in-laws, and other family members are eligible for HRA. They must meet the following requirements in order to be qualified to claim the HRA:

• The individual ought to be a paid worker.
• In reality, the individual who is living there should pay the rent for the property. A rental agreement with the family member and receipts from the family member for rent payments should serve as proof of this.
• There are no additional home properties owned by the individual where she works.

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Important things to keep in mind when obtaining an HRA exemption for parental rent

• Only the rent paid to the property is eligible for HRA. Any funds paid for the rental property’s upkeep or repairs are not eligible for an exemption.
• Parents should get rent that is in line with the market rental rate and the employee’s eligibility based on her CTC. However, keep in mind that an employee may be subject to an explanation from the Income Tax (IT) department if they flag him for paying rent to family members of Rs 40,000 when the current market rental cost is only Rs 19,000.
• The property must be owned by one or both parents because rent is paid to property owners. The person who owns it and provides you with a receipt for the rent must be paid in the case of other family members. One owner or several owners may own the property.
• A renter who claims an HRA exemption for a property cannot also be the property’s owner or co-owner.
• Your rental income should be listed under “income from house property” on your income tax form.
• The employee cannot claim the HRA rent exemption if she lives with her parents in a rental property and the father covers the rent.
• Since the rent must be paid in order to qualify for the exemption, it is advised that the rent be paid by bank transfer.
• Keep all records up to date and register the leasing agreement.
• If the annual rent exceeds Rs 10 lakh, the parents’ PAN card may be reported, so keep it close at hand.

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Rent-paying parents’ taxes

• Rent is taxable under income from dwelling property since it is an income for the parents.
• This rent is eligible for a 30% standard tax deduction for the parents.
• A higher minimum income exemption limit of Rs 3 lakh for parents 60 years of age and older and Rs 5 lakh for those 80 years of age and older applies if the parents are older than 60.
• A significant amount of tax will be saved on this rental income if the parents have no taxable income.
• They are also able to claim the property taxes they have paid.

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One excellent advantage is the ability to claim HRA exemption on rent paid to family members. They must pay their taxes in accordance with the previous tax system in order to choose this. This benefit should not be taken advantage of, though, as there is always a chance that the Income Tax Department will step in and issue a notice requesting an explanation. If convicted, severe penalties will be imposed.

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