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Should HRA tax exemption be allowed on rent paid to spouse?


Today’s newspaper carries an article with details of a ruling in favour of a husband who paid rent to his wife with whom he was staying, and claimed HRA tax exemption. This had been earlier rejected by the IT authorities and prompted the claimant approach the Tax Appellate Tribunal.

This sure comes as a surprise since section 10(13A) specifies that tax exemption for HRA cannot be claimed by paying rent to your spouse; the logic being that the husband and wife do not have a commercial relationship like that of a landlord and a tenant, and that they are supposed to live together.

Personally, I agree with the ruling, since the decision was taken keeping in mind this particular case, and is justified because –

  1. The wife is financially independent and the house where the couple stay is held in her name. It is not owned by the husband.
  2. The husband and wife are separate legal entities- they file their income taxes separately.
  3. HRA, by definition is the allowance given by an employer to the employee to meet the cost of renting a house and a tax exemption on the HRA can be claimed if the house is NOT owned by the claimant, and if he pays a regular rent to the owner. Both these conditions are met in the above case, as the wife receives and accounts for the rent in her IT returns as rental income earned, and the husband pays the rent regularly to the wife.
  4. It is common to find people staying with their parents and paying them a rent to claim income tax deduction on HRA. If that can be accepted as a “rental cost” by the employer, the same should hold good for the case in discussion too.

It indeed is a crime to evade taxes or reduce one’s tax liability by not disclosing all sources of income or showing a lesser income than that actually earned – which is what is the intention and reason behind the crores of rupees of black money and money laundering transactions which take place in our country today. But making use of loopholes in the income tax rules to try and save some taxes on one’s salaried income should surely be acceptable.

Readers’ views and opinions are welcome!

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3 responses

  1. in the same case as above ,,,, my case is that I am taking a house loan in my name and property is registered in the name of my wife and then I claim hra benefit by showing that I pay rent to my wife although I am not claiming any interest on loan (tax benefit) here… is this acceptable under law that I pay rent to wife for property in her name but loan in my name alone.

    1. Ideally, you should not be claiming HRA benefit since you are paying for the property owned by your spouse.

    2. In this case, even if your claim for exemption is allowed, the amount paid by you will be your wife’s income. And since you are paying the loan for the house, ultimately income of your wife may be clubbed in your income by the AO. Ultimate result being tax neutral to you.

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