Hra exemption u/s 10(13a)

This query is : Resolved

Ashish K. Randhawa (Querist)
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28 July 2012 Mr. A is employed with Delhi State Govt. and stays in Noida in a property owned by his wife.
His claim for HRA exemption was turned by deptt. on the following grounds:-

a) The property is owned by his wife
b) This is being co-occupied by the couple and the kids
c) Mr. A claimed to have paid 15k pm which is only about 50% of fair market rent of identical property in the locality. (Note Mr. A pay rent by a/c payee cheque)
d) No formal agreement has been entered into between A and his wife

I seek expert advice on Query listed below;

1. If Mr A can claim HRA exemption at the time of filing his return
2. If yes, what proof he needs to support his claim
3. How would this rental income be treated in the hands of his wife i.e. Income from self occupied or let out property, partially self occupied and partially let out
4. The property has 2 floors. The couple occupy ground floor where as the FF was vacant through out the year

Please comments

CA Rahul Jain

CA Rahul Jain (Expert)
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28 July 2012 Conceptually, HRA Exemption should be allowed but the arrangement seems to be as a colourable device to save the taxes.

However, this can be contested on the following grounds:
1. Formal rent agreement shall be there
2. The entire first floor has been let out to Mr. A
3. Mr. A is living with his family including spouse (Who turns out to be the owner of property).
4. Rent paid can be lower than the market rent and the income of his wife shall be calculated as per the provision of Income from House Property (Let out property).