Your company pays you HRA, but you don’t live in a rented accommodation. You live with your parents. Are you allowed to pay rent to your parents?
If you have to claim a deduction from HRA – you must
- live in a rented accommodation
- there must be a rent agreement
- you should be able to support the rent payment you make each month
If the house you live in is owned by your parents, you can enter into a rent agreement with them. The rent that you will pay to them will form part of their overall income. You can transfer the money into their bank account each month. They will have to declare these rent receipts in their return as income from house property.
When you do this arrangement – as a family you may actually end up saving tax (and comply with tax rules!) when they are in a lower income bracket or they don’t have any income. Even when the house is jointly owned by both your parents, you can pay them rent proportionately, that will spread the rental income between them and may turn out to be more beneficial. If your parents are more than 60 years old (and less than 80 years old), they are not required to pay any tax on income up to Rs 2,50,000. And if they are more than 80 years old their income is exempt up to Rs 5,00,000.
Your parents can further invest these receipts in senior citizen fixed deposits or other instruments that can earn them a higher return based on their age.
So go ahead and save that tax!