BackIncome tax calculator: Can taxpayers claim HRA exemption on rent paid to spouse?
Income tax calculator: Income tax department allows a taxpayer to claim HRA exemption under income tax act on rent paid to parents, brother or sister
PremiumIncome tax calculator: The income tax department has notified income tax return (ITR) forms and taxpayer are busy calculating their tax saving investments and expenses, which they can claim for exemption in their ITR for AY 2022-23 after the due date for TDS return filing i.e. 31st May 2022. However, while claiming HRA exemption, taxpayers are advised to think of innovative methods that can help them save income tax outgo. Taxpayers are also advised to know that it is up to the conscience of income tax officer whether it grant your tax exemption claim or not.
House Rent Allowance (HRA) is a classic example of it. As per the Section 10 of income tax act, a taxpayer can claim income tax exemption if it is paying rent for an accommodation which is not owned by it. So, if a taxpayer is residing in a house owned by its wife or husband, can claim HRA exemption under income tax act provided he or she is getting HRA in its monthly income.
However, there is a catch. According to tax and investment experts, if a taxpayer claims HRA exemption on rent paid to its spouse, then the spouse should have bought the house from its own income. It should should not be bought by the taxpayer himself in the name of its spouse.
Explaining the income tax rule on HRA exemption, Pankaj Mathpal, MD & CEO at Optima Money Managers said, "As per the HRA exemption rule under Section 10 of the income tax act, if a person has HRA income, then it can claim HRA benefit on the rent paid for the accommodation not owned by it. However, the income tax exemption rule holds well in the case of rent paid to parents, brother or sister. However, in the case of spouse, it's not that simple."
Explaining the twist involved on HRA exemption for rent paid to spouse, Mumbai-based tax expert Balwant Jain said, "The HRA exemption rule under Section 10 should not be used for tax evasion and it depends upon the conscience of income tax officer to grant HRA exemption, even when the claim fulfills the rule. The taxpayer should simply understand that one can't claim HRA exemption under income tax act on the rent paid to spouse if the house has been bought through the income of the taxpayer. So, an earning individual buying house in the name of his housewife is not eligible to claim HRA exemption on the rent paid to his wife because actual purchase of teh house is taxpayer himself."
"In case of taxpayer living in the accommodation owned by its parents, brother or sister, it can claim HRA exemption on the rent paid during the whole financial year. But the rent should not be more than 50 per cent of its basic salary plus DA (Dearness Allowance) in metro cities or 40 per cent of its basic salary plus DA in on-metro cities, exemption limit of the rent i.e. HRA mentioned in one's CTC or 10 per cent of the basic salary plus DA of one's salary, which ever is lower," said Pankaj Mathpal of Optima Money Managers.
"If the income tax officer finds that rent paid to wife has been claimed for HRA exemption under income tax act as a case of tax evasion, then it may go to the litigation. So, taxpayers are advised to avoid claiming HRA exemption under income tax act for rent paid to wife, if the house has been bought from the income of taxpayer himself," concluded Balwant Jain.
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