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Salaried husband entitled to HRA exemption for rent paid by him as tenant to owner wife” – ITAT Ahmedabad


Can a salaried employee legitimately claim the benefit of exemption for House Rent Allowance (HRA) received from his employer, under Section 10(13A) of the Income-tax Act, even in a case where the payment of house rent has been made by him to a member of his own family, say his wife or his father, who is owner of the house and who is also living with him in the same house? Readers will recall that your columnist has replied in the affirmative to this query, in this very column, also expressing the view that this provides a valuable opportunity of ‘tax saving by keeping it within the family.’

Very recently, the Ahmedabad Bench of the Income-tax Appellate Tribunal has, in the case of Bajrang Prasad Ramdharani vs. ACIT (37 186), also granted its seal of approval to this view, by deciding this very issue in favour of the taxpayer.

In the case before the Tribunal, the Assessing Officer (AO) had disallowed the claim of Rs.1,11,168 for HRA exemption, primarily on the ground that the taxpayer and his wife were living together, hence the claim for payment of rent to the wife was just to avoid payment of taxes and to reduce the tax liability.

The Commissioner (Appeals) also confirmed the action of the AO noting the fact that the rent was paid by the taxpayer as a tenant to his wife, who was the landlord. He further observed that the landlord and the tenant are living together in the same house-property and that very fact indicated that the whole arrangement was in the nature of a colourable device, as pointed out by the AO. He held that since it was evidently a colourable device, even though the amount purportedly paid as a rent would not qualify for exemption u/s.10(13A). Aggrieved by the order of the Commissioner (Appeals), the taxpayer came in appeal before the ITAT.

While rendering its decision, the ITAT, analyzing the provisions of Section 10(13A), observed that any allowance (by whatever name called) granted to a taxpayer by his employer, to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the taxpayer, is treated as exempt.

The amount of exemption is determined on the basis of least of the following three amounts:

  • HRA actually received.

  • Rent paid in excess of 10% of salary.

  • 50% of salary if the house is situated at Mumbai, Kolkata, Delhi or Chennai and 40% of salary at all other places.

However, the exemption is not available in case the residential accommodation occupied by the taxpayer is owned by him or the taxpayer has actually not incurred any expenditure on payment of rent in respect of such residential accommodation occupied by him.

The Tribunal noted that in the present case, admittedly, the AO had given a finding of fact that the taxpayer and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife was occupied by the taxpayer husband also. It was also a matter of record that the husband had paid cheques for the rent which were duly credited in the bank account of the wife. The ITAT, therefore, held that, “in our considered opinion, the taxpayer has fulfilled the twin requirements of the provision, i.e. occupation of the house and payment of rent. Under these circumstances, the taxpayer is entitled for exemption u/s.10(13A) of the Act.”

In Hindu mythology, a wife is referred to as ‘Grih Laxmi’. In the tax parlance, if she is also the owner of a residential house, she can well prove to be a ‘Kar Bachat Grih Laxmi.’


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