HRA exemption is not available to the owner

  •  The HRA exemption is not available if the house occupied by you is owned by you
  • The rental payments to relatives may be prone to scrutiny and the genuineness of the HRA exemption can be questioned

I reside alone in a property owned by my mother. I pay rent to her and have been claiming HRA (house rent allowance) deduction for the same. We are now planning to sell the current house and buy a new one. The new house will be financed by the proceeds of the old house and my mother’s other savings. She is aged and we don’t want to go through the legal hassles of getting the house transferred to my name in case of her death, so we wish to get my name included as a joint owner in the new property. Since I will not be paying anything towards the purchase of the property, can I still continue to pay rent to my mother after we move into the new house? Will I be eligible to claim HRA exemption?

—Tapas Ruperelia

At the outset, it should be noted that rental payments to relatives may be prone to scrutiny and the genuineness of the HRA exemption can be questioned.

Generally, if you are employed and are in receipt of HRA from your employer, you can claim an exemption in respect of rental payments made by you against such HRA under Section 10(13A) of the Income-tax Act. However, the HRA exemption is not available if the house occupied by you is owned by you or you have not actually incurred expenditure on payment of rent towards such house.

From an income tax perspective, mere inclusion of your name in the house agreement may not be the sole conclusive criteria to consider you as the owner of the house. However, keeping in mind the facts of your case (i.e. property belonging to your mother and rent being paid to her, you being the legal owner basis the purchase documents, etc.), the HRA exemption may be challenged.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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