How to claim HRA in the right way when paid rent to parents

August 9, 2025 Finance Talk Valli Sarvani

If you’re a salaried employee and live with your parents, you can legally claim House Rent Allowance (HRA) by paying them rent.

The Income Tax Act permits HRA deductions under Section 10(13A) even when rent is paid to parents, provided it’s done properly.

You must actually pay rent and maintain clear proof. A simple declaration won’t suffice.

The tax department closely examines such claims, especially when family members are involved.

Follow these steps to claim HRA legally:

Pay Rent Through Bank Transfers

Rent should be paid monthly via bank transfer. Avoid cash payments or backdated lump-sum transfers, as these may raise suspicion.

Prepare a Formal Rent Agreement

Create a written agreement that clearly mentions:

Monthly rent amount
Address of the rented property
Duration of stay
Names and PAN details of both parties

This formalises the arrangement and strengthens your claim.

Parents Must Report Rental Income

The rent you pay is considered income for your parents. They must report it under “Income from House Property” in their Income Tax Return (ITR). If they fail to do so, it could lead to mismatched records and possible scrutiny.

Common Mistakes to Avoid:

Claiming rent without actual payments
Verbal or informal agreements
Transferring all rent in one go at year-end
Parents not declaring rental income in their ITR

Keep the following documents ready:

Rent agreement (preferably on stamp paper)
Monthly rent receipts
Bank statements showing rent payments
PAN card of the landlord (required if the annual rent exceeds ₹1 lakh)
Your Form 16
Parents’ Income Tax Return (ITR), if requested

Here is an example for an HRA claim:

Assume you earn ₹10 lakh annually and pay ₹15,000 per month to your parents as rent. They are retired and fall under the 5% tax bracket. Properly claiming HRA can reduce your taxable income, while your parents pay lower tax on the rental income, creating a tax-efficient setup for both.

Claiming HRA by paying rent to parents is completely legal. But it must be genuine, documented, and transparent.

Taking shortcuts or using “workarounds” can lead to tax notices or penalties. Know the rules and follow them carefully.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on March 05, 2017