Saving Tax: Claim extra Deduction of Rs.1,80,000 by paying rent to your wife; Know More Details
The deadline for filing Income Tax Returns (ITR) is near, all taxpayers are trying to find various ways to reduce their taxes. There is one strategy that can reduce your tax payment which is paying rent to your wife. Yes, you heard it right you can save up to Rs.1,80,000 in income tax by paying rent to your wife. Let’s understand how it really works.
If you’re living in a house owned by your wife, you can pay her rent and claim House Rent Allowance (HRA) benefits. This strategy will work for you if you are a salaried individual and receive HRA as a part of your salary.
How Does It Work?
1. Ownership: Your wife should be the only owner of the house legally.
2. Rental Agreement: There should be a proper formal rental agreement between you and your wife. This rent agreement should include the terms of payment, the amount of rent to be paid and the lease duration.
3. Payment: To maintain a clear transaction record you should pay the rent through a bank transfer.
4. Receipt: Keep the rent receipt as proof of payment.
How Much Amount You Can Save?
Suppose, you get a salary on a monthly basis is Rs.1,00,000 including the HRA benefits of Rs.20,000 and pay a rent per month worth Rs. 25,000 to your wife.
Check the HRA Calculation for the Above Example:
HRA total Annually: Rs.2,40,000
Payment of Rent Annually: Rs.3,00,000
Basic salary’s 10%: Rs.1,00,000*12 = Rs.12,00,000; Rs.12,00,000* 10% = Rs.1,20,000
Calculation of HRA Exemption are as follows:
Annual totaled HRA: Rs.2,40,000
Rent paid – Basic salary’s 10%: Rs.3,00,000 – Rs.1,20,000 = Rs.1,80,000
50% of basic salary (in metro cities): 50% of Rs.12,00,000 = Rs.6,00,000
Out of the above three, the minimum amount i.e. Rs 1,80,000, which you can assert tax-free as HRA.
Points to Consider
1. Make sure all the payments are genuine without any errors to save yourself from future problems.
2. Keep in mind that the rent which your wife receives will be considered as her income and she will have to pay tax accordingly. Do not forget this while planning your taxes.
Rent payment to your wife is a smart move to reduce your tax payment under HRA benefits. Moreover, it is important to keep all the records properly and follow the legal requirements. By this, you will be able to save up to Rs 1,80,000 in taxes. Do consult with your tax advisor before planning doing strategy on your own.
