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Tax exemption on HRA for self when wife receives rent

Tax exemption for self when wife pays rent is not available since wife pays the rent

Apnaloan.com Research Bureau

10 Aug 2007

Can I get exemption on HRA on account of rent paid to my wife?

I am in the process of buying a flat in joint name with my wife. My wife will be making the down payment from her own sources and will also be repaying the loan from her own sources. I am a joint owner and a co-borrower; only for smooth succession purpose. I intend to take the house on rent from my wife and claim exemption of HRA on account of such rent paid to my wife. Am I eligible for claiming exemption of HRA for tax purposes? Would the position be different if I was not a co-owner in the flat and just a co-borrower?

You can claim exemption of HRA in respect of rent paid to your wife only under specific circumstances.

If you are an owner of the property (and that includes being a co-owner) than I am afraid you will not be eligible to claim exemption of HRA by virtue of the rental amount paid to your wife.

  However, if you are not a co-owner and if the transaction with your wife is on an arm's length basis (i.e. you pay commercial rent and the transaction is an actual transaction and not a sham transaction) then technically-you may be able to claim the exemption of HRA by virtue of the rent paid to your wife. Technically, you being a co-borrower for the loan has no impact on the exemption of HRA. However, this transaction is best avoided as the I-T department is unlikely to accept that the transaction is on a commercial basis as the landlord (your wife) will be staying with you. 

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