Outlook Money
Taxpayers who live on rent can maximise on saving their taxes by claiming a deduction for HRA from the salary.
One can pay rent to parents if staying with them. This can be done either by transferring the rent amount to their bank account or by paying through a cheque. This helps one to claim HRA deduction properly.
The deduction of rent paid by a taxpayer is limited to House Rent Allowance received, 40 per cent of the Basic Salary in addition to dearness allowance (DA) and Rent paid less than 10 per cent of the basic salary + DA.
In order to keep the rental agreement legally acceptable, one needs to have a formal rental agreement with parents as proof, maintain regularity in rent and have rent- income declaration of parents, which means the rent is their income.
The main advantage of claiming HRA while living with family is that one gets to save tax as a family since by submitting rent receipts and paying them, one is able to claim an exemption on HRA.
Compiled by Syed Muskan