Can I Claim HRA for Rent Paid to Parents in Another City? (FY 2024-25 Guide)
- Farheen Mukadam
- Aug 31
- 8 min read
Yes, you can claim House Rent Allowance (HRA) for rent paid to your parents, even if they live in another city. Indian tax laws permit this, but you must meet specific conditions to ensure the transaction is genuine. This guide explains the rules, documents, and steps for you and your parents for the Financial Year 2024-25.
Table of Content
Key Conditions for Claiming HRA
To claim HRA for rent paid to parents, you must follow some important rules. A quick look at the table below shows the key conditions. Following these ensures your claim is valid.
Condition | Requirement |
Genuine Tenancy | You must actually pay rent to your parents. |
Formal Agreement | A legal rent agreement is mandatory as proof. |
Parental Ownership | Your parents must be the legal owners of the property. |
Traceable Payments | Use bank transfers or UPI; avoid cash payments. |
Parent's ITR | Your parents must report the rent as income in their tax return. |
Tax Regime | You can only claim HRA under the Old Tax Regime. |
The "Another City" Question: Why Location Doesn't Matter
Many people wonder if they can claim HRA for rent paid for a house in a different city. The location of your rented home does not affect your HRA claim. The Income Tax Act's Section 10(13A) provides the rules for HRA exemption. This section does not state that your rented home must be in the same city as your workplace.
The primary rule is that you must be paying rent for an accommodation you occupy. So, if you work in one city but pay rent to your parents for a house you live in in another city, you can still claim the HRA benefit. The law focuses on the genuine payment of rent, not on the geographical location of the property.
The Golden Rule: Old Tax Regime vs. New Tax Regime
A critical point to remember is that you can claim HRA exemption only if you choose the Old Tax Regime. The HRA deduction is not available under the New Tax Regime, which is now the default option for taxpayers. Before you proceed with your claim, you must confirm that you have selected the Old Tax Regime with your employer for the financial year.
This choice impacts your overall tax planning because the two regimes have different rules for deductions and tax rates. The Old Tax Regime allows various deductions, like HRA and those under Section 80C, but has higher tax rates. The New Tax Regime offers lower tax rates but eliminates most deductions.
Here is a simple comparison:
Feature | Old Tax Regime | New Tax Regime (Default) |
HRA Exemption | Available (under Sec 10(13A)) | Not Available |
Other Deductions | Most deductions like 80C, 80D available | Most deductions removed |
Tax Rates | Higher slab rates | Lower slab rates |
Step-by-Step Guide to Claiming HRA for Rent Paid to Parents
Step 1: Verify Property Ownership
To claim HRA for rent paid to parents, the first step is to confirm they are the legal owners of the property. One or both parents must hold the title of the house. You, the employee claiming HRA, cannot be a co-owner of the same property, as this would make you ineligible for the deduction.
Important Note: If the property is owned by a grandparent or another relative, you cannot pay rent to your parents for it and claim HRA. The rent must be paid to the legal owner. Tax authorities often reject claims that do not meet this fundamental ownership condition.
Step 2: Create a Formal Rental Agreement
A formal rental agreement is mandatory to prove you are a genuine tenant. This document acts as the primary evidence of the landlord-tenant relationship between you and your parents. Without a written agreement, your HRA claim could be questioned.
Your rental agreement must include these essential details:
Names of the tenant (you) and the landlord (your parent/s).
Complete address of the rented property.
The monthly rent amount and the due date.
The duration of the agreement (e.g., 11 months).
Signatures of both you and your parent.
Getting the agreement notarized, though not always mandatory, can add more legal validity to the document.
Step 3: Make Actual, Traceable Rent Payments
You must genuinely pay rent to your parents every month. It is very important to avoid cash transactions. Instead, use payment methods that create a clear financial trail. The best options are bank transfers, UPI, or cheques.
These methods provide verifiable proof of payment through your bank statements. This documentation is crucial if the Income Tax department asks for evidence that the rent was actually paid. A clear record of monthly transfers from your account to your parent's account strengthens the legitimacy of your claim.
Step 4: Collect Monthly Rent Receipts
For every rent payment you make, you must collect a signed rent receipt from your parent (the landlord). These receipts are essential proof that your employer will require to process your HRA claim. Each receipt should contain details like the rent amount, the rental period, and the landlord's signature.
Pro-Tip: If your total annual rent payment exceeds ₹1,00,000 (which is more than ₹8,333 per month), it is mandatory to provide your landlord's (parent's) PAN on the rent receipts. Without the PAN, your employer may reject your HRA claim for the amount paid above this limit.
Step 5: Submit Proofs to Your Employer
You need to submit the required documents to your employer to get the HRA exemption reflected in your monthly salary. This is typically done by providing the rental agreement and rent receipts to your HR or payroll department. Many companies have an online portal for uploading these proofs.
You may also need to fill out and submit Form 12BB, which is a declaration of the investments and expenses you plan to claim for tax deductions. When your employer receives these proofs, they can accurately calculate your HRA exemption and deduct a lower amount of TDS from your salary each month.
Tax Implications for Your Parents (The Landlord)
When you pay rent to your parents, that amount becomes taxable income for them. It is crucial for them to report this income correctly to maintain the genuineness of the transaction and stay compliant with tax laws.
How to Report Rental Income
Your parents must declare the rent they receive from you in their Income Tax Return (ITR). This income is reported under the head "Income from House Property." Failing to declare this income can lead to scrutiny from the tax department for both you and your parents.
Claiming Deductions
Your parents can claim certain deductions against the rental income, which helps lower their taxable amount. The two main deductions are:
Standard Deduction: A flat 30% deduction on the total annual rent is allowed for expenses like repairs and maintenance. This can be claimed even if the actual expenses are lower.
Property Tax: They can also deduct the amount of municipal or property taxes they have paid for the house during the financial year.
When is This Arrangement Most Beneficial?
This arrangement provides the most significant "family tax saving" benefit if your parents' total income, including the net rental income, falls in a lower tax slab than yours. It is even more beneficial if their income is below the basic exemption limit, meaning they would pay little to no tax on the rental income.
Here is an example of how their taxable rental income is calculated:
Description | Amount (₹) |
Annual Rent Received (15,000 x 12) | 1,80,000 |
Less: Property Tax Paid | (5,000) |
Net Annual Value | 1,75,000 |
Less: 30% Standard Deduction | (52,500) |
Taxable Rental Income for Parent | 1,22,500 |
How is HRA Exemption Calculated?
The HRA exemption you can claim is calculated based on a specific formula provided by the Income Tax Act. The amount of exemption is the lowest of the following three figures:
The actual HRA you receive from your employer.
The actual rent you pay annually minus 10% of your annual salary (Basic + Dearness Allowance).
50% of your annual salary if you live in a metro city (like Delhi, Mumbai, Kolkata, Chennai) or 40% for a non-metro city.
Example Calculation (Non-Metro City):
Let's assume:
Basic Salary: ₹40,000 per month
HRA Received: ₹16,000 per month
Actual Rent Paid: ₹12,000 per month
City: Pune (Non-Metro)
Here’s the annual calculation:
Actual HRA received: ₹16,000 x 12 = ₹1,92,000
Rent paid - 10% of salary: (₹12,000 x 12) - 10% of (₹40,000 x 12) = ₹1,44,000 - ₹48,000 = ₹96,000
40% of salary: 40% of (₹40,000 x 12) = ₹1,92,000
The lowest of the three amounts is ₹96,000. So, the HRA exemption for the year would be ₹96,000.
Conclusion
To summarize, you can certainly claim HRA for rent paid to your parents in another city for FY 2024-25. The key is to remember this benefit is only for those under the old tax regime.
The entire arrangement must be authentic. A proper paper trail, including a rental agreement, traceable bank payments, and monthly rent receipts, is essential to prove the transaction's genuineness. Also, ensure your parents declare this rent as income in their ITR to stay compliant and avoid any issues with the tax department.
Frequently Asked Questions (FAQ)
Is a rent agreement mandatory to claim HRA from parents?
Yes, a formal rent agreement is a mandatory document. It serves as legal proof of your tenancy and is required by employers and tax authorities to validate your claim.
What if I pay rent in cash?
It is strongly advised to avoid cash payments. Payments made through bank transfers, UPI, or cheques create a verifiable financial trail, which is crucial evidence if your claim is scrutinized.
What happens if my parents don't own the house?
You cannot claim HRA for rent paid to your parents if they are not the legal owners of the property. The rent must be paid to the person who legally owns the house.
Can I claim HRA if I am a co-owner of the property?
No, you cannot claim HRA if you are a co-owner of the property for which you are paying rent. The law requires the tenant to not be an owner of the rented accommodation.
Do my parents need to issue a rent receipt every month?
Yes, it is best practice to collect a signed rent receipt for every monthly payment. These receipts are essential proof for your employer and for your own records.
What if my annual rent is less than ₹1 Lakh? Do I still need my parent's PAN?
If the annual rent is ₹1,00,000 or less, providing the landlord's PAN is not mandatory. However, having a rent agreement and receipts is still required.
Can I claim HRA if I didn't submit proofs to my employer?
Yes, if you missed submitting the proofs to your employer, you can still claim the HRA exemption when you file your Income Tax Return (ITR). You must calculate the exempt amount yourself and reduce it from your taxable salary, but be sure to keep all documents (agreement, receipts, bank statements) safe in case the tax department asks for them later.
Can I claim both HRA and a home loan deduction?
Yes, you can claim both HRA and a home loan deduction at the same time, but under a specific condition: the house you own must be in a different city from where you are renting and working.
What is the maximum rent I can pay to my parents?
There is no maximum limit, but the rent you pay must be reasonable and in line with the market rate for similar properties in that area. Paying an unusually high rent could be seen as a way to evade taxes and may attract scrutiny.
Can I claim HRA for rent paid to my spouse?
Claiming HRA for rent paid to a spouse is generally not allowed, as such transactions are often viewed with suspicion by tax authorities and could be disallowed.
Can a self-employed person claim HRA?
A self-employed person cannot claim HRA under Section 10(13A) as it's for salaried individuals. However, they can claim a deduction for rent paid under Section 80GG of the Income Tax Act, provided they meet certain conditions.
What if my parents' income becomes taxable because of my rent? Is it still worth it?
This depends on your and your parents' tax slabs. If your parents are in a lower tax bracket or have no other income, the overall tax paid by the family could still be lower, making it a beneficial arrangement.
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