• HRA claim

I am a professional working in Mumbai. My father stays in Kolkata. Currently, for certain reasons I am not being able to claim HRA deductions.
In order to plan my tax better, I am asking my father to buy a low priced property in far outskirts of Mumbai (costing about 15 lakhs). The plan is to then pay rent to my father and claim HRA on that. Obviously, everything would be genuine and my father would be paying house rent tax on the income received by me.

My main question with this arrangement is: Whether I would be able to pay a monthly rent of say about 75,000 on a property for which the actual monthly rent would be about say Rs. 5,000. Would that attract the ire of the assessing officer?
Asked 2 years ago in Income Tax from Greater Mumbai, Maharashtra
Hello there!

HRA exemptions depends on three prescribed conditions. Here are those for your understanding.

Least of following three is exempt.

1) Actual HRA received 
2) Rent paid less 10% of salary  (Salary means basic plus D.A.)
3) 50% of salary (Basic plus D.A.) in case of metro city 

So you should check this with your salary structure. 

Further regarding paying higher rent than prevailing market rates, there's no restriction under the Income Tax Act. The Income shall be added in your father's hand taxable under the head Income from House property.

CA Ankit Adhyaru 
Mo. 9898789180
Ankit Adhyaru
CA, Ahmedabad
19 Answers

4.3 on 5.0

Dear Sir, 

It would be a proper case of Tax Avoidance & not tax planning.
So, Strongly recommended not to do the above.

However, you may take our help personally.
It would be our pleasure to guide you in this matter.

Contact at:
Shiv Kumar Agarwal
CA, Delhi
258 Answers
58 Consultations

5.0 on 5.0

Dear Sir

This practice is common among employees and we are regularly dealing with the same as we are doing pay roll processing and tax returns of employees of MNC.

There is no problems which came to the light of AO. If it comes then we need to prove that it is a genuine transaction and manage. Other than this I hope you understood and need no further clarification. If you need then on this public domain we cannot discuss the same.
Shyam Sunder Modani
CA, Hyderabad
1408 Answers
95 Consultations

5.0 on 5.0

Dear Sir,

Though the transaction looks little suspicious upfront, but considering the value involved in the transaction I don't think AO will investigate the matter.

It is strongly recommended to keep the proper documents such as rent agreement, rent receipts and transfer of money through bank account.

We personally do not recommend this but at the same time we don't see much problems.

Thanks and Regards,
CA Abhishek Dugar
Abhishek Dugar
CA, Mumbai
2936 Answers
123 Consultations

5.0 on 5.0

Hello Sir,

It is a pleasure discussing a case with a Fellow Chartered Accountant. I understand that leaving the law aside your main dilemma is not to involve any litigation and unnecessary harassment by the ITO.

With the help of a Personal case I would like to help you with your following query :

1. Will the AO open up the case ???
Just on the grounds of the HRA, the ITO may not open up your case. But if your case is taken up for any other reason then he may pick up the HRA part.

2. Will the AO consider it as a Tax Avoidance & ask you to pay taxes.
Yes he may consider it as Tax Avoidance and ask you to pay taxes as he will be of the view that you have made this arrangement with a pure purpose of avoiding taxes.

3. Now the main question, will you actually have to shell out taxes.
As you know AO is always of the Revenue point of view and hardly knows Tax Laws, so may stick to it saying that it will be added to your income and you will have to pay taxes.
But if you have all the necessary documents at your disposal, your father has regularly filled returns, paid the due amount of  tax on his return, then the Comissioner Appeal will allow your appeal and dismiss the AO's additions.

Trust this clarifies your query. 

Feel free to get back/ call back for any further clarifications. 

Thanking You. 

Rohit R Sharma
Rohit R Sharma
CA, Mumbai
2104 Answers
91 Consultations

5.0 on 5.0

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