HRA tax exemption: Five things to know about rent paid to spouse
The rent received is taxable, but not all of it. There is a 30% standard deduction on rental income. If the spouse gets Rs 6 lakh per year as rent, he/she will be taxed for only Rs 4.2 lakh.
By ET CONTRIBUTORS |
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Here are the dos and don’ts of paying rent to spouse for HRA exemption.
- Ownership: The house should be owned by spouse. The tax department will not allow tax exemption for HRA if the taxpayer is a joint owner of the property.
- Rental lease and proof of payment: There should be a lease drawn up between the husband and wife, spelling out the rent amount and period of tenancy. The rent should be transferred to the spouse’s bank account every month. This money trail will serve as proof of regular payment.
- Avoid circular transactions: The amount received as rent should not be paid back to the tenant spouse. The tax department may see this as a circular transaction and disallow the tax deduction for HRA claimed by the taxpayer.
- Rent received is taxable: The rent received by the house owner will be taxed as income at the slab rate applicable to the taxpayer. The rental income should not be ignored because it will reflect in the Annual Information Statement (AIS) with the tax department.
- Rent not fully taxed: The rent received is taxable, but not all of it. There is a 30% standard deduction on rental income. If the spouse gets Rs 6 lakh per year as rent, he/she will be taxed for only Rs 4.2 lakh.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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