Can I claim HRA for rent that parents pay?

I am currently working from home remotely. I am living with my parents, and they also live on rent. Can I claim HRA exemption if I send rent to my parents’ account monthly? Though my parents don’t have any rent agreement because we stay in a small city where rent agreements are not common. Is there any way I can claim HRA by making any documents through notary?

— Name withheld on request

It is presumed that you are a salaried individual and receive a House Rent Allowance (HRA) from your employer.

Section 10(13A) of the Income-tax Act, 1961 read with Rule 2A of the Income-tax Rules, 1962, governs the exemption towards HRA received from employer.

As per the provisions of this section, an exemption towards HRA is available to a taxpayer:

.- if rental payments are actually incurred by the taxpayer in respect of residential accommodation occupied by him/ her

- subject to the limits specified.

However, in the following scenarios, the HRA exemption is not allowed:

- the residential accommodation occupied by the taxpayer, is owned by him; or

- the taxpayer has not actually incurred expenditure on payment of rent in respect of such residential accommodation.

In the instant case, we understand that the accommodation has been rented by your parents and the rent payments to the landlord are being done by your parents. There is no rent agreement executed between your parents and the landlord. You propose to reimburse these rental payments to your parents.

In the instant case, while it can be argued that the rental payments are ultimately borne by you for an accommodation occupied by you but not owned by you, however, as the rent is not directly paid by you to the landlord, claim of HRA exemption is not free from doubt. Also, rental payments made to relatives (parents/ spouse / siblings, etc.) have been a subject matter of litigation and may be challenged. The genuineness of the transactions in any case, would need to be substantiated with appropriate documentation such as registered/ notarized rental agreements, appropriately stamped rent receipts, bank statements reflecting the rental payments, PAN of landlord, TDS as applicable deducted from rent, etc. Further, taxability of rental receipts in the hands of your parents would also need to be evaluated.

Please note that if you choose to claim the HRA exemption through your monthly payroll, grant of such exemption at the TDS stage by your employer, will also be subject to your employer’s policies around the documentation requirements for allowing such an exemption, in which case you may then need to claim it in your tax return.

Separately, please note that HRA exemption is not available from your taxable income if you are opting for the new tax regime.

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