Income tax calculator: can taxpayers claim Hra exemption on rent paid to spouse?

Income tax calculator: The income tax department has notified income tax return forms (ITR) and taxpayers are busy calculating their tax-saving investments and expenses, which they can claim for an exemption in their ITR for AY 2022-23 after the deadline for filing the TDS declaration, i.e. May 31. 2022. However, while claiming the HRA exemption, taxpayers are advised to think about innovative methods that can help them save income tax. Taxpayers are also advised to know that it is up to the conscience of the tax official whether or not to grant your request for tax exemption.

Housing allowance (HRA) is a classic example. According to Article 10 of the Income Tax Law, a taxpayer can apply for exemption from income tax if he pays rent for a dwelling that he does not own. So, if a taxpayer resides in a house owned by his wife or husband, he can claim an HRA exemption under the Income Tax Act provided he receives HRA in his monthly income.

However, there is a catch. According to tax and investment experts, if a taxpayer claims an HRA exemption on rent paid to their spouse, the spouse should have purchased the home with their own income. It must not be purchased by the taxpayer himself on behalf of his spouse.

Explaining the income tax rule relating to the HRA exemption, Pankaj Mathpal, MD and CEO of Optima Money Managers, said: “In accordance with the HRA exemption rule under Section 10 of the income tax law, if a person has HRA income, then they can claim an HRA benefit on the rent paid for the home they don’t own. the income holds up well in the case of rent paid to the parents, brother or sister.On the other hand, in the case of the spouse, it is not so simple.

Explaining the twist involved in the HRA exemption for rent paid to spouse, Mumbai-based tax expert Balwant Jain said: “The HRA exemption rule under Section 10 should not be used to tax evasion and it depends on the conscience of the income tax officer to grant HRA exemption even when the claim satisfies the rule.The taxpayer just needs to understand that one cannot claim the tax evasion. ‘HRA exemption under the Income Tax Act on rent paid to the spouse if the house was purchased with the taxpayer’s income.An individual who buys a house on behalf of his housewife is not eligible to claim the HRA exemption on rent paid to his wife because the actual purchase of the house is the taxpayer himself.”

“In case of taxpayer living in the dwelling owned by his parents, brother or sister, he can apply for an HRA exemption on the rent paid during the whole financial year. But the rent must not exceed 50% of his basic salary plus DA (Dearness Allowance) in metropolitan cities or 40% of his basic salary plus DA in metropolitan cities, rent exemption limit, i.e. HRA mentioned in his CTC or 10% of basic salary more DA of his salary, as the case may be lower,” said Pankaj Mathpal of Optima Money Managers.

“If the income tax officer finds that the rent paid to the wife has been claimed for the HRA exemption under the Income Tax Act as a tax evasion case, he can then initiate litigation.Thus, taxpayers are advised to avoid claiming the HRA exemption under the income tax act for the rent paid to the wife, if the house was purchased with the income of the taxpayer himself,” concluded Balwant Jain.

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Esther L. Steinbach