Can a Taxpayer claim HRA Deduction on the rent paid to spouse?

Last Updated On: Feb. 9, 2020, 7:15 p.m.

Circulars issued by the Income-tax Department (ITD) just propose investigating the HRA game plan to learn that they are not a hoax. House rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding HRA from the total income of the employee 

As per the recent Ruling, which held that the rent paid by a person to his wife can be allowed as an exemption under HRA if the claim is genuine. Therefore, we again assert that a taxpayer is entitled to claim the HRA exemption for rent paid to his or her spouse provided the taxpayer maintains robust documentation to prove there is a genuine commercial arrangement between the spouses and rent has been paid 

The goal behind the HRA arrangement is to permit workers an exemption in regard to the rent they pay for accommodation. The thought is to help individuals who have needed to move puts and have taken up accommodation, on rent to be nearer to their work environment. Be that as it may, a few citizens endeavor to take the undue advantage of the HRA provisions by getting into hoax transactions and courses of action: Paying rent to one's life partner and guaranteeing HRA advantage by making counterfeit rent receipts, and so on, is one such trick.

To avail the HRA benefits, many people try to show that they are paying rent to a family member in whose name the house is registered. Many salaried men even register the house that they have bought in the wife’s name to get a cheaper home loan, pay lower registration amount as well as availing the HRA benefits by showing rent paid to the spouse.

To determine if such an arrangement of paying rent to a spouse is allowed, let’s discuss respective tax rules.

Actual Rent payment transaction should be there

If you are staying on rent, you should actually pay the rent amount to the landlord and there should be adequate proof of payment. Mere declaration and submission of rent receipts without transfer of money can’t be taken as sufficient proof to claim HRA benefits. So, first of all, you must pay rent to your spouse.

Your Spouse should be the Owner of House

The person renting out the accommodation and receiving the rent must own the house. So, the house may either be ancestral or acquired by your spouse. According to section 27 of the Income Tax Act, an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred. Moreover, the relation between husband and wife is not treated as a commercial relationship. So, if you transfer the house property to your spouse or register it in the name of a spouse without taking adequate consideration, it will be treated as a gift and any income from the house will be clubbed to your income. As a result, if you are staying in such accommodation and claiming that you are paying rent to your spouse, the rental income will be added to your taxable income. Even if you manage to get the HRA benefit, you may actually pay more tax as HRA benefit cannot be more than the rent paid/received.

Sharing accommodation is not an option to claim Deduction

If you show that you are paying rent, there must be a complete house or a part of the house with clear demarcated portion in which you are staying on rent. A tenant can’t share living spaces in a house with the landlord in rented accommodation. So, if you are staying along with your spouse in the same accommodation, you can’t claim HRA deductions.

So, in nutshell, you may claim the HRA benefit on rent paid to the spouse in an improbable situation where the following conditions are fulfilled:

1. The house must be an acquired or ancestral property of your spouse.

2. You must be staying on rent in the house of your spouse without sharing the living space. Like in the case of estranged relations, your spouse allows you to stay separately in the same house.

3. You actually pay rent to your spouse.

Most of you must be aware that on the off chance that you are living in a rented convenience and your company is giving you house rent allowance (HRA) as a section your pay, you can guarantee HRA conclusion comparable to the minimum of the accompanying: 

1) Real rent paid 

2) Basic pay minus 10 percent of rent paid 

3) 50 percent of the pay, if staying in a metro or 40 percent of the compensation, if staying in a non-metro 

In any case, a considerable lot of you may not know about the accompanying tenants: 

1) You can pay the rent to your parents and guarantee the HRA conclusion if your parents claim that property. In any case, they should demonstrate the rent as income from house property. Be that as it may, in the event that you are staying with your parents in a rented settlement and they are paying the rent, you can't guarantee the HRA deduction. 

2) You can't pay rent to spouse and guarantee HRA deduction. 

3) You can claim both HRA and home loan deduction of Rs. 1.5 lakh against principal repayment and Rs. 2 lakh against interest paid, in the event that you are remaining in an alternate city because of occupation posting. 

4) Regardless of whether HRA isn't a piece of your salary, you can guarantee an HRA deduction under Area 80GG. This Section is applicable for the individuals who don't get HRA as a major aspect of their pay and self-employed individuals 

5) You can claim HRA under this Section by filling up Form 10BA. You can only claim HRA under this Section only if you are staying in rented accommodation and paying rent. This house shouldn't be co-owned by you and also you don't own any house in the same city.


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