Things to know before paying rent to your close relatives – Income Tax Laws.

By Abhay Shah, Realty Quarter

In the event that you are an employee, the income tax regulations provide certain advantages in regard to rent paid by you for your housing. Under Section 10 (13A) you can request tax advantage for the House Rent Allowance (HRA) only when you are receiving HRA from your employer and actually are paying rent for your residential accommodation not owned by you. The law does not restrict your payment and reimbursement of such a rental to your relatives. The transaction of rental payments should, however, be real and not fake. There are therefore certain measures to ensure that the claim does not become a topic of litigation in cases where you pay rents to your near relative and are claiming tax benefits according to Section10 (13A).

Filing of income tax returns when paying rent to relatives:

Even if you can assert tax benefits for the rent that is paid, the payment you make to your relative is his or her earnings and therefore taxable. It is therefore in your own concern to ensure that the rent is part of the recipient’s taxable income. There are high chances of income being not included from the rent, if the rent is paid in cash, and therefore does not represent in their bank accounts. If a relative to whom the rent you pay does not exceed the taxable limit of his or her total income (including the rent), he or she is not required to file his or her income tax return.

However, it is in your interests to make sure that this is done, to put the record straight. Also, note that you can still file the same even if your earnings don’t exceed the taxable cap. Please receive a referral acknowledgement submitted.

Home Loan and HRA claim simultaneously:

There is no limitation in the Income Tax Act that you concurrently claim tax benefits for home loans and HRA. But the house you claim for home loan benefits and that you claim to be HRA for, should not be in the same area since it is probable that you would receive rent while you already owning a house in the same locality. If, however, you pay for a rental house close to your job and you make use of the home loan benefit for a place from which it is difficult to travel every day. In this case, you can, however, reimburse both benefits, provided that the circumstances warrant it.

Documents required for Tax Exemption:

1) Rent Agreement: You should enter into a leave and license agreement with the individual who possesses the estate as you use the tax benefits to pay for the rent.

2) Registration: Ideally, the agreement should be registered.

3) Rent Receipt: In addition, the rental receipt should be frequently received by the landlord for the rent paid, in case the assessing officer requires at the time of evaluation.