1. HRA Exemption is lower of
   1. Actual HRA received
   2. 50% of basic (in case of metro city) / 40% of basic (in case of non-metro city)
   3. Rent Paid minus 10% of basic

• HRA Exemption for Rent paid to Spouse / Parents:

As decided in the case of Bajrang Prasad Ramdharani vs ACIT ITAT Ahmedabad and recent ruling by Income Tax Appellate Tribunal, Delhi that for claiming HRA exemption, rent paid to spouse is Valid if the twin conditions are satisfied -

1. The residential accommodation is not owned by the assesse.
2. The assesse has actually paid the rent (CIT (Central), Kanpur vs Sri P. D. Singhania.
3. Assesse should not be co-owner of the property and paying rent to other co-owners.

(It is always advisable to have rent agreement if the property is owned by relative, rent payment to be done through account payee cheque or bank transfer and receipts of rent to be taken regularly. This will be sufficient for claiming HRA exemption. If rent is not paid, or paid in cash but not able to prove it, then HRA exemption can be disallowed.)

1. Spouse / Parents declare the Income received as Income from House Property in there income tax return and mandatory to file return if the Total income exceeds Rs.2.50 Lacs p.a..

• Rent Paid for the Family:

Staying out of the city is not allowed, rent should be paid for accommodation taken by employee and not by his family.

• Flat Maintenance Payment:

The same constitutes rent and eligible for HRA exemption. Even if the bills for expenses like parking, electricity charges and maintenance are incurred in the name of owner of the property, can be allowed for HRA exemption, provided that it is mentioned into the rent agreement and owner of property issues receipts for the expenses paid by tenant.

• Is rent agreement is mandatory for claiming HRA exemption:

The income tax law does not provide for claiming HRA exemption. However, it is desirable for any rental agreement to be on record for claiming HRA tax exemption.