We all look towards pay minimum tax every year but some people get confused when it comes to saving tax on the rent that he/she pays to a close relative. This is so because some hesitate to ask for rent receipts and some for other reasons. But, this hesitation leads to a hole in the pocket. So, it’s time for some action, instead of thinking too much about what to do. Here we are listing some smart ways to help you save tax while paying rent to a close relative:
- Tax Rebate Provision under Section 10(13A)
The Income Tax Rules are the one thing that offers you a chance to declare investments and hefty payments you make every year on the basis of which you become eligible to pay a particular amount of tax for the particular fiscal year. Hence under the IT [Income Tax] law, the salaried people get an option to declare the exact amount of rent they pay during every financial year for living in a rented property.
In this case, a tenant can avail tax rebate under the House rent Allowance also known as HRA which is predefined in Section 10(13A). This deduction can be availed if the person is living in a rented accommodation under a legal rent agreement that states him/her as a tenant and other person as a landlord of the same property. This is possible if a person is actually living in a rented house and has a legal rent agreement. This rebate can only be availed if the company/organization in which the tenant is working deducts some amount from his/her monthly salary as a part of HRA [House rent Allowance].
- Essential Documents to Tax Saving
The leave and license agreement is an essential document that you should get prepared when living as a tenant in the property of any close relative. Apart from this, you are required to attach the rent receipt of every month’s rent paid to the investment declaration form. Both these documents are beneficial to save tax as they serve as a proof of investment to the assessing officer. Also, the rent receipt keeps you clear of any due rent issue raised by the landlord.
- Mode of Rent Payment to a Close Relative
Firstly, you as a tenant must not pay rent in cash to the landlord. This is the basic rule as you won’t get a receipt of this payment from the property owner. Then you must keep the receipt of rent transferred to the landlord every month as it clearly proves timely payment of rent on a monthly basis.
It is always safe to bring bank in between when making a rent payment as it keeps the rent payment and received issue clear. This is also important when looking for new accommodation as you can prove to pay rent in a timely manner.
- Tax Deduction at Source
The recent addition in the Income Tax Act this year states that 5% on the rental amount of Rs. 50,000 per month for an individual is deductible from now and the same amount is required to be submitted to the Central Government.
- Avail Tax Exemption on both Homeloan and HRA
The tenant can save tax on rent even if he/she falls under the minimum tax slab. You are only required to submit rent receipts and other documents if asked in order to avail tax rebate.
- Update Address Details
In case you change accommodation from one financial year to another then you as a tenant is required to update address details with the employer in order to seek HRA deduction and more tax savings.