HRA or House Rent Allowance is the most common allowance received by salaried individuals. Those who live on rent can maximise on saving tax by claiming a deduction for the HRA component from the salary.
However many salaried or self-employed individuals stay with their parents. But can those living in their parent's house claim HRA exemption? Well, yes they can. Those who live with their parents can pay rent to their parents and save tax on HRA. This article will discuss in detail how to claim HRA while living in your parent's house.
It is important to note that HRA exemption can be claimed only by those taxpayers opting for the old tax regime. It is not applicable under the new tax regime.
The Income Tax Act of 1961 permits claiming HRA exemption for rent paid to parents under certain conditions:
The least of the following amounts can be claimed as HRA exemption:
Example: Aditya aged 22 years lives in New Delhi with his parents.
His office was in Gurgaon and he commuted daily to his office.
Aditya had recently started working, and his employer asked for tax saving declarations for FY 2024-25 to calculate TDS on salary.
Aditya’s colleagues who lived in Gurgaon in PG accommodation were submitting rent receipts to claim HRA.
HRA is paid to them as part of their salary. However, Aditya is unsure if he can claim HRA since he lives with his parents.
Here is a calculation on how he can claim HRA while living with his parents;
Particulars | Rs. |
Basic Salary | 3,00,000 |
HRA | 1,50,000 |
Special Allowance | 1,65,000 |
Total | 6,15,000 |
Less: Standard Deduction | 50,000 |
Total Taxable Income | 5,65,000 |
Total tax | 25,500 |
Cess @ 4% | 1,020 |
Total Tax Payable | 26,520 |
Here are three cases in which we will understand how much HRA will be exempt if he pays rent to his parents. You can use ClearTax HRA calculator to find out the HRA component you can claim.
HRA exemption calculation | Case 1 | Case 2 | Case 3 |
A. Rent paid | 12,000 | 12,500 | 13,000 |
B. HRA per month | 12,500 | 12,500 | 12,500 |
C. 50% of the basic salary* | 12,500 | 12,500 | 12,500 |
D. Actual rent paid – 10% of the basic salary | 9,500 | 10,000 | 10,500 |
E. HRA exempt portion (Least of the B, C & D) | 9,500 | 10,000 | 10,500 |
F. HRA taxable portion per month (B - E) | 3,000 | 2,500 | 2,000 |
The tax saved by Aditya after claiming HRA exemption will be as follows:
Revised Taxable Salary | Rs. | Rs. | Rs. |
Basic Salary | 3,00,000 | 3,00,000 | 3,00,000 |
Taxable HRA | 36,000 | 30,000 | 24,000 |
Special Allowance | 1,65,000 | 1,65,000 | 1,65,000 |
Total salary | 5,01,000 | 4,95,000 | 4,89,000 |
Less: Standard Deduction | 50,000 | 50,000 | 50,000 |
Total taxable salary | 4,51,000 | 4,45,000 | 4,39,000 |
Total tax | 10,050 | 9,750 | 9,450 |
Cess @ 4% | 402 | 390 | 378 |
Total Tax Payable | 10,452 | 10,140 | 9,828 |
Tax Saved | 16,068 | 16,380 | 16,692 |
However, rent paid to Aditya’s father will have to be included in his father’s total income.
Let’s take Case 1, where Aditya decides to pay rent to his father, a sum of Rs 12,000 per month. His father’s rental income is Rs 1,44,000 for the whole financial year. Besides this income, his father has an interest income of Rs 3,00,000. His father is 65 years old.
Let’s find out the taxable income of Aditya’s father, before receiving rent and after receiving rent from Aditya.
Income tax calculation of father with and without rental income.
Taxable Income of Aditya’s father | With rental income | Without rental income | |
Interest income | 3,00,000 | 3,00,000 | |
Rental income | 1,44,000 | ||
Less: Municipal Taxes paid | 3,000 | ||
Less: 30% deduction | 42,300 | 98,700 | – |
Total taxable income | 3,98,700 | 3,00,000 | |
Total tax | 4,935 | ||
Cess | 197 | – | |
Total tax payable | 5,132 | – | |
Rebate u/s 87A | 5,132 | - | |
Net Tax Liability | 0 | 0 |
Total tax saved as a family = Rs 17,628 - Rs 5,132 = Rs 12,496
Claiming HRA exemption by paying rent to your parents is one way how a salaried individual can save tax. But this has to be declared in the parent's ITR under Income From House Property. Claiming such an exemption without complying with tax provisions can attract scrutiny. Therefore, the taxpayer should be careful while claiming such an exemption.
Related Articles:
1. HRA – House Rent Allowance – Exemption Rules & Tax Deductions
2. 5 things you must know about the most common allowance – HRA
3. HRA calculator