Paying rent to kin for tax relief? Now, you will have to furnish proof of rent payment

Tax payers cannot be granted exemptions on house rent allowances (HRA) against sham rent payments to their kins.

New Delhi: One of the most common practices among the salaried class is claiming house rent allowance (HRA)  via rent paid to kins.

As per a report in the Times of India, this practice will no more be allowed by the income tax authorities.

Quoting a Mumbai income tax appellate tribunal (ITAT) the TOI said that it “denied a claim on house rent allowance (HRA) by a taxpayer. She had paid rent in cash to her mother, but was unable to substantiate it.”

However, “the Ahmedabad ITAT allowed the HRA exemption claimed by a taxpayer who had paid rent to his spouse,” TOI report said.

The Mumbai ITAT recently held that an assessee cannot be granted exemptions on house rent allowances (HRA) against "sham" rent payments, like the one made to one's parents supported only by receipts.

The HRA exemptions claim cannot be allowed u/s 10 (13A) of the Income Tax Act based on "sham" rent payments supported only by purported rent receipts from parent sans other genuine supporting evidence, ruled the Mumbai bench of IATA recently.

The bench even enumerated an indicative list of documents as supporting evidence arising normally during a tenancy.

The documents may include leave and licence agreement, letter to society intimating about tenancy, payment through bank, cash payments backed with known sources, electricity bill payments through cheques, water bill payments through cheques etc besides the correspondence during the period of alleged tenancy, the bench said.