When HRA deduction can be claimed on rent paid to spouse?

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Updated: December 27, 2018 10:53:46 AM

Many salaried men register the house that they have bought in wife's name to get a cheaper home loan, pay lower registration amount as well as to avail HRA benefits by showing rent paid to the spouse.

income tax, house rent allowance, HRA, HRA deductions, HRA benefits, rented accomodation, rent paid to spouse, Section 27 of Income Tax Act, transfer fo house without consideration to spouseTo avail the HRA benefits, many people try to show that they are paying rent to a family member in whose name the house is registered.

House Rent Allowance (HRA) provides deductions on the basis of basic salary, HRA received and rent paid. As HRA deduction reduces taxable income substantially, salaried people try to avail the benefit. However, the benefit may only be available when you take a house or a portion of it on rent, which is not owned by you and actually pay rent for staying in the rented accommodation.

To avail the HRA benefits, many people try to show that they are paying rent to a family member in whose name the house is registered. Many salaried men even register the house that they have bought in the wife’s name to get a cheaper home loan, pay lower registration amount as well as availing the HRA benefits by showing rent paid to the spouse.

To determine if such arrangement of paying rent to spouse is allowed, let’s discuss respective tax rules.

Rent has to be actually paid

If you are staying on rent, you should actually pay the rent amount to the landlord and there should be adequate proof of payment. Mere declaration and submission of rent receipts without transfer of money can’t be taken as sufficient proof to claim HRA benefits. So, first of all, you must pay rent to your spouse.

House must be acquired and owned by your spouse

The person renting out the accommodation and receiving the rent must own the house. So, the house may either be ancestral or acquired by your spouse. According to section 27 of the Income Tax Act, an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred. Moreover, the relation of husband and wife is not treated as a commercial relation. So, if you transfer the house property to your spouse or register it in the name of spouse without taking adequate consideration, it will be treated as a gift and any income from the house will be clubbed to your income. As a result, if you are staying in such an accommodation and claiming that you are paying rent to your spouse, the rental income will be added to your taxable income. Even if you manage to get the HRA benefit, you may actually pay more tax as HRA benefit cannot be more than the rent paid/received.

Accommodation can’t be shared

If you show that you are paying rent, there must be a complete house or a part of house with clear demarcated portion in which you are staying on rent. A tenant can’t share living spaces in a house with the landlord in a rented accommodation. So, if you are staying along with your spouse in the same accommodation, you can’t claim HRA deductions.

When you may claim HRA benefit on rent paid to spouse

So, you may claim the HRA benefit on rent paid to spouse in an improbable situation where the following conditions are fulfilled:

  1. The house must be an acquired or ancestral property of your spouse.
  2. You must be staying on rent in the house of your spouse without sharing the living space. Like in case of estranged relation, your spouse allows you to stay separately in the same house.
  3. You actually pay rent to your spouse.

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