Salaried employees can claim HRA exemption on rent paid to a parent under the old tax regime, provided they live in the property, pay rent and maintain proper records.
Salaried employees in India can claim House Rent Allowance exemption while paying rent to a parent, but only if the arrangement is real, properly documented and consistent with tax rules. Business Standard reported that there is no blanket bar on a parent being the landlord; what matters is that the employee actually lives in the property, pays rent and does not own the home being used for the claim.
The relief is available only under the old tax regime, not the new one. As ClearTax founder Archit Gupta explained to Business Standard, the exemption is limited to the lowest of the HRA actually received, rent paid minus 10% of salary, or 50% of salary in specified cities and 40% elsewhere. Other guidance, including reports from Mint and finance websites, says a rent agreement, bank transfers and rent receipts are central to proving that the tenancy is genuine.
The parent’s ownership position also matters. While the tax rule does not spell out that the landlord must always be the legal owner, the cleanest structure is for the parent to own or co-own the property and have the right to let it out. Several tax guides note that if ownership is shared, rental income should generally be reported in line with those ownership shares, rather than being assigned arbitrarily to one parent.
The tax effect does not stop with the child’s HRA claim. Rent received by the parent is generally taxable under the head of income from house property, though a standard deduction of 30% is usually available, according to the material cited by Business Standard. The family may still come out ahead if the parent is in a lower tax bracket, but the arrangement can be challenged if the rent is only on paper, the employee lives elsewhere, the property is actually owned by the employee, or the parent does not report the income properly. As Gupta told Business Standard, the parent’s final tax bill depends on total income and the applicable tax regime, so any saving is an outcome of a genuine tenancy, not a loophole.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
