FINANCE TAX SPECIAL .........................How save tax on HRA when living with parents

How save tax on HRA when living with parents

House Rent Allowance or HRA is received as part of salary for most. Is it possible to save income tax on HRA when living with parents?

Let’s first look the conditions for claiming an exemption from HRA

• You must live in a rented accommodation
• There must be a rent agreement to support your stay
• You should be able to support the rent payment you make each month

If the house you live in is owned by your parents, you can enter into a rent agreement with your parents. Every month you can transfer the rent amount to their bank account. This rental income shall be included in their total income.

• Your parents will show this income under the head Income from House Property in their IT Return.
• On this rental income a standard deduction of 30% is allowed.

With this rent arrangement, as a family you may actually end up saving tax when your parents are in a lower income bracket or they don’t have any other income. Even if the house is jointly owned by both your parents, you can pay them rent proportionately, that will spread the rental income between them and may turn out to be more beneficial. If your parents are more than 60 years old (and less than 80 years old), they are not required to pay any tax on income up to Rs 2,50,000. And if they are more than 80 years old their income is exempt up to Rs 5,00,000. Your parents can further invest these receipts in senior citizen fixed deposits or other instruments that can earn them a higher return.

By Clear Tax Yahoo Finance India4 Dec, 2014