IT benefit on HRA can be claimed by paying rent to wife rules Delhi Tribunal

If you are staying in your own house, you will not be able to claim the IT benefits on the HRA received. However, a recent ruling by Delhi Tribunal provides a way to claim the IT benefit on the HRA received. Central Government employees may find this news useful.

What is HRA (House Rent Allowance)?

HRA is the house rent allowance in income tax. It means the salary component received towards the rent payment is allowed as a deduction from taxable salary under Section 10(13A).

How is Tax Exemption From HRA Calculated?

The deduction available is the least of the following amounts:

1. Actual HRA received
2. 50% of [basic salary + DA] for those living in metro cities OR 40% of [basic salary + DA] for those living in non-metros
3. Actual rent paid should be less than 10% of basic salary + DA

So when you are residing in your own house, the actual rent paid will be zero. Hence no deduction in respect of IT is possible.

One way to avail of tax benefits through house rent allowance (HRA) is to transfer the house into your wife's name and enter into a rent agreement with your wife. 

The Delhi Tribunal ruled in February n the case of Abhay Kumar Mittal vs. deputy commissioner of Income-Tax (I-T), that if the rent is paid to the wife and her income resources, including the rent income, are proven in the income tax return (ITR), the benefit of HRA cannot be denied to the husband. Most importantly, the decision stated that the exemption cannot be denied even if the property for which HRA is being claimed is primarily funded by the husband.

To claim the HRA, you have to retain the rent receipt. You have to submit Form 12BB, the rent agreement and the rent receipts to your employer. The rent receipt must include the tenant’s name, landlord’s name, amount of rent, date of payment, period of rent, address of the house, the signature of the landlord, PAN of the landlord and revenue stamp among other details.

To claim the HRA, the house shouldn’t be owned by the husband, rather it should be in the name of the wife only. The husband shouldn’t own any part of the house.

Notably, the income of the wife must be mentioned while claiming for the ITR even if her earnings are less than the basic exemption limit. It has to be noted that the rent paid to the wife will be treated as income for her tax calculation.