Tax Exemption on HRA for self When Wife Receives Rent

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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