HRA Deduction By Paying Rent To Parents: If you’re a salaried employee looking to reduce your tax burden, claiming House Rent Allowance (HRA) by paying rent to your parents might seem like a smart move.
And yes, it is legal — but only if it’s done properly and genuinely.
CA Apoorva Gavai in a recent post on LinkedIn said, “Yes — it’s technically legal to claim HRA if you’re paying rent to your parents. But it’s only legal if you’re actually doing it — and doing it right.”
Every year, during income tax return (ITR) season, tax professionals encounter cases where individuals attempt to claim HRA without actually fulfilling the necessary legal conditions. The “jugaad” mindset may work in other areas of life, but when it comes to taxation, shortcuts can lead to Income Tax notices and penalties, according Gavai.
Yes, You Can Claim HRA for Rent Paid to Parents
Under Section 10(13A) of the Income Tax Act, salaried individuals living in rented accommodation can claim HRA deductions. The law does not restrict the landlord to a third party. So, if you’re living with your parents and actually paying them rent, you can legally claim HRA.
But there’s a catch: You must be able to prove it.
What the Income Tax Department Looks For
In recent years, the Income Tax Department has increased scrutiny of HRA claims, especially those involving rent paid to family members. Salaried individuals have started receiving notices when they:
- Show rent paid but have no transaction record
- Claim rent without a valid rent agreement
- Parents have not declared rent as income in their own ITRs
In essence, the tax department is tightening the loop to crack down on fraudulent deductions.
How to Claim HRA to Parents?
Here’s what you must do to ensure your claim stands up to scrutiny:
Actually Pay Rent via Bank Transfer
Make sure to transfer rent every month to your parents’ bank account. Cash payments or backdated transfers are red flags. A consistent digital trail helps you prove genuine intent and regularity.
Rent Agreement is a Must
Prepare a formal rent agreement clearly mentioning:
- The monthly rent amount
- Duration of tenancy
- Address of the property
- Names and PAN details of both parties
Having a written contract formalises the arrangement and strengthens your claim.
Parents Must Declare Rental Income
Your parents should report this rental income in their own ITR under “Income from House Property”. If they fail to do so, it could lead to mismatches in records and possibly land you in trouble.
What Not To Do
Avoid these common pitfalls:
- No rent transfer: Just claiming rent on paper without financial proof can lead to tax notices.
- Verbal agreements: These hold no value for tax claims.
- Last-minute calculations: Backdating rent or transferring a lump sum in March raises suspicion.
- Parents skipping ITR declaration: This is a classic red flag for the taxman.
Documents to Keep Handy
- Rent agreement (on stamp paper)
- Monthly rent receipts
- Bank statements showing rent transfers
- PAN of landlord (if rent exceeds Rs 1 lakh/year)
- Your Form 16
- Parents’ ITR if questioned
HRA Claim: An Example
Let’s say:
You earn Rs 10 lakh annually.
You live with your parents and pay Rs 15,000/month in rent.
They’re retired and fall in the 5% tax bracket.
By claiming HRA properly, you may reduce your taxable income by a significant amount. Meanwhile, your parents declare the rental income in their ITR, possibly paying less tax overall — a win-win if done correctly and legally.
“If you’re earning a salary and looking to save tax, know the rules — don’t game them. Half-baked knowledge is the fastest way to land an IT notice in your inbox,” CA Apoorva Gavai said.
