Central government employees can apply for HRA benefits by paying rent to spouses; check details here

You and your spouse must enter into a rental agreement where you must regularly pay rent to your spouse and in return obtain the receipts from the exchange

Representative image. AFP

Not many people may know, but central government employees can get Housing Allowance (HRA) tax benefits with a well-woven tenancy agreement with their spouse. Under the 7th Wage Commission, central government employees are entitled to obtain HRA.

As simple as it sounds, applying for HRA benefits is a process that should be handled with care. There are a few tips to consider before applying for the benefit to avoid having your applications denied. Here’s how you can benefit from HRA exemptions by entering into an agreement with your spouse.

Rental agreement

You and your spouse must enter into a tenancy agreement where you must regularly pay rent to your spouse and in return obtain the receipts from the exchange. These receipts must contain the name of the tenant, the name of the owner, the amount, the date of the payment, the address of the house, the PAN of the owner (your spouse) and the tax stamp. These receipts must be submitted by the taxpayer, along with the rental agreement and Form 12BB.

Source of income

To avoid the refusal, it is imperative that your spouse has an independent source of income other than the rent received. This will prove that the rental agreement is legitimate and not an instrument to reduce tax liability. In addition, rental income earned by your spouse must be declared to your spouse’s ITR. The ITR must be filed even if your spouse falls under the basic exemption ceiling.

Home ownership

For this system to work, your spouse must be the sole owner of the house. The house shouldn’t even be part of yours. In the event that the ownership of the house that your spouse owns is financed by a loan for which you are the co-applicant, it is advisable to lend money to your spouse so that he can repay the home loan to the bank.

In addition, the couple moving forward with such a system must calculate their combined tax payable to analyze whether the arrangement reduces or increases the overall tax payable. This should be done especially when both spouses are under the same tax bracket.

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