Income tax saving tips: This method can be beneficial for those taxpayers who want to make a part of their salary tax free under House Rent Allowance (HRA).
There are many ways to save income tax in India, one of which is to save tax by paying rent to the wife. This method can be beneficial for those taxpayers who want to make a part of their salary tax free under House Rent Allowance (HRA). Let’s know how this method works and how much tax can be saved.
How to get the benefit?
Rent Agreement
First of all, you have to make a valid rent agreement with your wife. The amount of rent and other terms should be clearly written in it.
Proof of payment
The amount to be paid as rent should be paid through bank transfer or check. This will ensure that you have proof of payment.
HRA Claim : You can claim the amount paid to you as HRA from your employer. While calculating HRA, three key factors are taken into consideration:
- The actual HRA that you receive.
- 50% (if you live in a metro city) or 40% (if you live in a non-metro city) of the rent paid amount.
- The rent paid and the balance after deducting 10% of the basic salary.
How much tax will be saved?
Suppose your monthly salary is ₹1,00,000, which includes ₹20,000 HRA, and you pay a monthly rent of ₹25,000 to your wife.
– In this case…
Annual HRA: ₹2,40,000
Annual rent payment: ₹3,00,000
10% of basic salary: ₹1,20,000
– Thus, the exemption calculation for HRA will be as follows:
Annual HRA: ₹2,40,000
Rent – 10% of basic: ₹3,00,000 – ₹1,20,000 = ₹1,80,000
50% of basic (in metro cities): 50% of ₹1,00,000 = ₹6,00,000
Out of the above three, the minimum amount is ₹1,80,000, which you can claim tax free as HRA.
These things have to be kept in mind
Genuine agreement: The rent agreement should be genuine and there should be no fraud behind it.
Proof of payment: Proof of payment in the form of bank statement or cheque payment is necessary.
Rental income: Your wife will have to show rental income in her income tax return.
What is the advice for you?
Paying rent to your wife can be a great way to save tax, but it is important to do it carefully and correctly. It is important to consult a tax chartered accountant before taking advantage of this.
