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Hra exemption for salary income

pooja (taxpracticing) (243 Points)

13 April 2021

hello everyone....can a person take exemption of HRA if he paying rent to his grandfather ...by showing as tenants and landlord relationships
please answer...thank you

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35 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 13 April 2021

No it is not valid as per IT act and you cannot claim HRA in this case

pooja (taxpracticing) (243 Points)
Replied 13 April 2021

Ok thank you sir

Prathyusha Varma (ArticleShip) (393 Points)
Replied 13 April 2021

Yes you claim exemption but your grandfather has to show as income

3 Like

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 13 April 2021

But how can it happen as it is under relative and there is no employer employee relationship

1 Like

Prathyusha Varma (ArticleShip) (393 Points)
Replied 13 April 2021

As per act we need to pay rent. It may be to anyone. Why we nned employee or employer relationship here completely irrelevant

5 Like

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 13 April 2021

House Rent Allowance is a subset of an employee’s salary which is provided to cover the cost of accommodation up to a certain percent. As the employee would be spending this amount on accommodation, the government does not expect the employee to pay tax on this amount and the employee can claim a tax exemption for the HRA amount.

As per the prevailing rules, HRA exemption can be claimed for the following amounts:

On the actual HRA received.
Balance of rent paid over 10% of the employee’s total salary.
Up to 50% of the salary if the employee resides in Mumbai, Delhi, Kolkata or Chennai. The percentage is 40% for other cities.

House Rent Allowance (HRA) is given by an employer to his/her employees to meet rental expenses. The HRA is taxed under the head ‘Income from Salaries’. The HRA is designed to give the employee tax benefits for meeting accommodation expenses. The HRA is given only to salaried employees, self-employed individuals may not claim for HRA. The HRA is regulated by Section 10(13A) of the Income Tax Act. A part of the HRA is exempt from taxes through provisions in Section 10(13A). The taxable income of the individual is determined by deducting the HRA exemption from the total income of the individual. The HRA is fully taxable if the employee is not staying in a rented accommodation.

HRA exemption is only applicable to salaried individuals who have HRA as a component of their salary and are residing in a rented accommodation. Self-employed professionals are not eligible for the tax benefit on HRA.

And being the main part..

Rent being paid to family members
The person claiming the tax benefit should not own the premises being rented out. If an individual is paying rent to his/her parents, he/she may claim a tax deduction on HRA. But, the assessee may not claim a deduction of HRA is he/she is paying rent to his/her spouse. Due to the nature of a marital relationship it is considered that the individual will be renting the property out with his/her spouse.

Prathyusha Varma (ArticleShip) (393 Points)
Replied 13 April 2021

You have the answer in it...pooja is paying to grandfather not spouse

2 Like

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 13 April 2021

I know but if AO claims it as relative transactions then it might be disallowed

Ankit Neema (2742 Points)
Replied 14 April 2021

AO does not allowed the if the same is reasonable, Mr. Sourav Please tell where you read that exp. paid to Relative is disallowed, if unreasonable then such exp is disallowed,
if I am paying reasonable rent then the same is allowed.

1 Like

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 14 April 2021

I know that paying to relatives are allowed but in specific cases it may be disallowed.

Section 40A(2): Disallowance of expense on Payments to Relatives
Section 40A(2) provides power to the Income Tax Officer that in case any expenditure has been incurred and the payment has been made or is to be made to certain specified persons and he is of the opinion that such expenditure is excessive or unreasonable with regard to the fair market value of the goods, services or facilities provided, he may disallow such expense as he considers to be excessive or unreasonable.
Therefore, for an amount to be disallowed as an expense under Section 40A(2), the following 3 conditions are to be satisfied:-

The payment is in respect of any expenditure
The payment has been made or is to be made to a specified person in respect of such expenditure
The payment for the expenditure is considered excessive or unreasonable having regard to the fair market value of the goods, services or facilities provided.
If all the above conditions are fulfilled, the Income Tax Officer can disallow the expenditure to the extent he considers it excessive or unreasonable.

Specified Persons for the purpose of Section 40A(2)
The specified persons for different categories of taxpayers for the purpose of Section 40A(2) are as under:-

Category of
Taxpayer Specified Persons
1. Individual a. Any Relative;
b. Any person in whose buinsess or profession, the individual himself or his
relative has substancial interest

Prathyusha Varma (ArticleShip) (393 Points)
Replied 14 April 2021

Yes business expense for relatives are disallowed but not hra

SUSHANT BIDAYE (578 Points)
Replied 14 April 2021

In my opinion, rent paid to grandfather can be claimed for HRA exemption, if the property is owned by grandfather.

also for safer side, make an agreement and pay rent month to month.

of course grandfather has to treat it as taxable income in his hands

3 Like