While the Income Tax Act does permit claiming HRA for rent paid to your parents, the arrangement must be genuine and backed by proper proof. With the Income Tax Department now using AI and data-matching tools, spotting false or suspicious claims has become easier than ever.
To legally claim HRA when paying rent to your parents, you should:
– Pay the rent regularly through bank transfers
– Have a proper rent agreement in writing
– Make sure your parents declare this rental income in their ITR
– Missing any of these steps could not only get your HRA claim rejected but also land you with a tax notice or penalty.
Mistakes That Can Cost You Your HRA Claim
– Skipping rent payments: Claiming rent without actual bank transactions can trigger tax notices.
– Relying on verbal pacts: These carry no weight for tax purposes.
– Making year-end lump payments: Backdating rent or paying a lump sum in March can raise red flags.
– Parents not reporting rent: If your parents skip showing the rent in their ITR, the tax department will take notice.
How is HRA Exemption Calculated?
Under the old tax regime, your HRA exemption is the lowest of these three amounts:
– Actual HRA you receive from your employer
– 50% of your salary if you live in a metro city, or 40% if you live in a non-metro
– Rent you pay minus 10% of your salary
Key Documents to Keep Ready
– A stamped rent agreement
– Receipts for each month’s rent
– Bank records showing rent payments
– PAN details of the landlord (if yearly rent is above Rs 1 lakh)
– Your Form 16 from your employer
– Copy of your parents’ ITR, if asked by the tax department
