Are you trying to find legal strategies to lower your income tax? Paying your wife's rent is a little-known but entirely legal tax-saving tactic. Yes, you read correctly. If done properly, this wise decision might result in annual income tax savings of up to ₹1.8 lakh through house Rent Allowance (HRA) claims.
Let's examine how this operates and the requirements you must meet to gain access.
Step 1: Draft a Legit Rent Agreement
To claim HRA exemption, there must be a valid rental agreement between you and your wife. This document should mention:
Monthly rent amount
Rental terms and conditions
Duration of stay
This agreement is your first proof that the transaction is legitimate.
Step 2: Pay Rent via bank or Cheque
To ensure the payment trail is clear, always pay rent to your wife through bank transfer or cheque. This will serve as valid proof during tax assessments.
Do not pay in cash-digital payment ensures transparency and credibility.
Step 3: Claim HRA from Your Employer
Once the agreement is in place and payments are being made, you can claim HRA exemption. The calculation depends on the least of the following three:
Actual HRA received from your employer
50% of basic salary (for metro cities) or 40% (for non-metro cities)
Rent paid minus 10% of your basic salary
Example: How Much Can You Save?
Let's say:
Monthly salary: ₹1,00,000 (Basic Salary: ₹1,00,000)
HRA received: ₹20,000/month
Rent paid to wife: ₹25,000/month
City: Metro
Annual Figures:
HRA received: ₹2,40,000
Rent paid: ₹3,00,000
10% of basic salary: ₹1,20,000
Rent - 10% of salary = ₹1,80,000
50% of basic salary = ₹6,00,000
Now, the lowest of the three values is ₹1,80,000, which is the amount you can claim as tax-free HRA.
Let's examine how this operates and the requirements you must meet to gain access.
Step 1: Draft a Legit Rent Agreement
To claim HRA exemption, there must be a valid rental agreement between you and your wife. This document should mention:
Monthly rent amount
Rental terms and conditions
Duration of stay
This agreement is your first proof that the transaction is legitimate.
Step 2: Pay Rent via bank or Cheque
To ensure the payment trail is clear, always pay rent to your wife through bank transfer or cheque. This will serve as valid proof during tax assessments.
Do not pay in cash-digital payment ensures transparency and credibility.
Step 3: Claim HRA from Your Employer
Once the agreement is in place and payments are being made, you can claim HRA exemption. The calculation depends on the least of the following three:
Actual HRA received from your employer
50% of basic salary (for metro cities) or 40% (for non-metro cities)
Rent paid minus 10% of your basic salary
Example: How Much Can You Save?
Let's say:
Monthly salary: ₹1,00,000 (Basic Salary: ₹1,00,000)
HRA received: ₹20,000/month
Rent paid to wife: ₹25,000/month
City: Metro
Annual Figures:
HRA received: ₹2,40,000
Rent paid: ₹3,00,000
10% of basic salary: ₹1,20,000
Rent - 10% of salary = ₹1,80,000
50% of basic salary = ₹6,00,000
Now, the lowest of the three values is ₹1,80,000, which is the amount you can claim as tax-free HRA.
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