Can I pay rent to my parents to claim HRA and save tax?

We often look for ways to legally save taxes to keep more of our hard-earned money with us. One such way for salaried individuals to save on taxes is by claiming HRA (House Rent Allowance). HRA is a standard component of many employees’ salaries. A part of the allowance becomes tax-exempt if you stay in a rented premises.

Now, it might often be a case where you are employed and stay with your parents. As you are not staying in a rented place, in this case, your entire HRA becomes taxable. But what if you can claim HRA exemption by paying rent to your parents?

Well, there’s no section in the Income Tax Act that restricts such a transaction.

However, there are certain conditions that need to be fulfilled:

  • You must pay rent to your parents. The mode of payment should ideally be a bank transfer or cheque. This way you’ll have proof of the transaction made.
  • The property must be owned by them. You can not be a co-owner of the property.
  • There must be a rent agreement between you and the parent owning the house. Also, make sure to keep the rent receipts.

Keep in mind that the rent paid by you to your parents will be income for them. Hence, they will have to report this income under the head “Income from house property” and pay taxes on it.

However, they can claim property taxes paid by them and also claim a 30% standard deduction from this rental income.

The benefits can be,

  • You can pay rent to your parents and claim HRA.
  • Your parents can deduct property taxes and also claim a 30% standard deduction on the rental income.
  • If they are more than 60 years old, they will also enjoy a higher minimum income exemption limit i.e. ₹3,00,000.
  • In case they do not have any other taxable income, you can save a significant amount of taxes as a family.

Not just parents, even if you are living with any of your relatives, you can pay rent to them and claim HRA, given that the above conditions are satisfied.

You can plan considering how much HRA you will be able to claim along with how much tax liability your parents will have to incur. If there is a considerable difference, you could definitely consider this way to save your taxes. You can use this HRA calculator that will help you in decision-making.

Reply to this thread with any questions you have and we’ll be happy to answer them.

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@Surbhi_Pal Is there any rule that put any restriction/upper limit on the amount of rent that can be declared for claiming HRA or the rent should be within reasonable rent for any area?

Example: Can paying monthly rent of 3L/month and then claiming HRA over actually allowed? This payment would be accounted in Income from house property, but clearly exceeds reasonable rent in the area.

Hey @noob_jethalal,

There’s no such limit on the amount of rent paid. But, there’s TDS applicable on rent payments made of more than ₹50,000. Hence, you will have to consider the same.

Moreover, the amount of Exempt HRA will be the least of the following amounts:

  • Actual House Rent Allowance received
  • Actual rent paid less 10% of salary
  • 50% of the salary in case of metro city/ 40% in case of a non-metro city
    (Here Salary includes – Basic Salary + Dearness Allowance)

Hope this helps!