Yes, you can pay rent to my wife or spouse or parents to claim the HRA tax benefit in India.
In the eyes of Income-tax, each individual is a separate entity and hence can have his own income.
You can pretty well pay the rent to your spouse and claim the HRA tax exemption for your income.
Rent Is Income of Wife/Parents
The only thing to consider is the rent paid should be counted as INCOME for the spouse or the parents.
If your spouse or parents do NOT have any other income source, then this INCOME (rental) could be pretty beneficial. On one hand, they might not even cross the minimum income tax slab to be required to pay any tax. Currently, people with a total yearly income of INR 2,50,000 need not pay any income tax.
On the second hand, you are claiming tax exemption on this rental amount.
This way, the tax saving remains within the family.
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If you are staying in your home that you own, then you can’t show the rent as ‘paid’ to yourself. This is NOT allowed as per Indian tax law.
If you are paying rent to your parent or spouse, there should actually be a valid transaction (Bank payment is preferred) that shows the flow of money from your account to their account.
You need the documents like rent receipts and a valid rent agreement to prove rent payments between you and your family member.
This would be required if the income tax officer questions your intent.
Many people who stay with their in-laws can create a registered rent agreement and keep paying the rent to their mother or father-in-law.
A family member’s PAN number would be required to claim the HRA tax exemption.
You can legally pay rent to your wife even if she is a joint owner in the property. The only thing to note is that she can receive rent only for the portion of the property she owns.
Example, if your wife owns 50% of the property rights, then she can only receive 50% of the total market rent rate for that property.
Note that even though you are claim HRA benefit using this technique, it is really difficult to prove it to the Income tax auditor if they decide to check your case.
Normally, your employer may also not approve your HRA tax exemption claim if you cannot produce rent receipts along with PAN number.