Introduction
A good number of individuals have to leave their hometowns in order to search for employment. Once they get a good job, they have to settle down in that city and continue their employment. In most cases, the employees have to rent a house to live in. To help them cope with this expense, employers offer house rent allowance to their employees.
This house rent allowance or HRA is an important component of every individual’s salary. The main reason being the individual receiving this allowance is eligible for tax deduction from the same. However, what most people do not know is that they can claim tax deductions from HRA even if they are living with their parents.
This article will show you the way you can do so.
How to get tax exemption by living with your parents?
Legally in order to get tax exemption from house rent allowance, you need to live in a rented property and pay rent to the landlord. So, you must be asking how you can accomplish the same if you live with your parents.
The easy solution is to pay rent to your parents while you are living with them. This should be accomplished by sending the funds as rent payment to their bank or by paying with a cheque. You will indeed be able to appropriately claim your house rent allowance tax deduction legally with this approach. Since rent payment needs to be made to the landowners, your parents have to own the house you are living in. Both or any one of your parents might own it. Consequently, in the situation of shared house ownership, you need to deposit the rent money to any one of your parent's bank accounts or to whoever is the legitimate owner of the property.
You need to make sure that you are not a co-owner or owner of the property as you cannot seek tax breaks on the amount of rent that you have paid to yourself. Also, your parents need to keep rent receipts for every time you transfer them rent money. An online rent receipt generator is an easy way to accomplish this. Also, you can use an HRA calculator tool to compute how much tax deduction you will be getting. HRA calculators accurately compute your tax deduction amount removing chances of manual error.
Document needed to get tax exemption
The most important piece of document that you need to get a tax deduction is valid rent receipts. For their reference, employers need a copy of the leasing agreement. They may also collect rent receipts in order to grant you a house rent allowance exemption. You and your parents can make a basic rental contract.
As mentioned above, online rent receipt generators can be your best friend for this. These receipts can be printed and submitted to your company's payroll department. You may also store them on your PC by downloading them. It is critical to preserve accurate documents in case the evaluating officer requests them.
Benefits of getting tax exemption by living with parents
The main benefit of getting tax exemption by living with parents is saving tax money as a family. Here are the details:
- Your parents may claim a property tax deduction as well as the normal deduction of 30% of the total rental income.
- If your family is in a lower income tax band than you, then your family in general may save money on taxes as a whole.
- Your family will also benefit from a larger income exemption level if they are currently above the age limit of 60 years. The income exemption level is set to Rs.3 lakhs for people above 60 years and the same is raised up to Rs.5 lakhs for people aged above 80 years.
- If your parents have zero taxable income, then you can save a considerable amount of tax as a whole family.
Important points to note
Here are some points to note before you get into a rental contract with your parents:
- The rent you pay to your parents is taxable for them.
- The rental income must be recorded in their annual income tax returns under the heading 'income from house property.'
- Rent receipts are an absolute must. You may accomplish this by using online rent receipt generators.
The bottom line
There are many calculations that go into determining your actual expenditure on rent. Whether you have decided to rent a house in some other city and live by yourself, or you are still in your parent's home and paying rent, it is important to determine how much tax deductions can be availed. Therefore, an HRA calculator becomes the need of the hour, especially for such people who want to get their tax breaks without any misunderstandings.