HRA Claim if you live with your parents.

As rental income is taxable for parents , one needs to consider Income Tax Slab of parents. One needs to sit down and workout whether paying rent to parents will actually help to save tax or not on net basis. You should save tax through transparent way. Any discrepancy in tax details may invite heavy penalty from income tax department. It is always advisable to consult tax consultant before claiming any tax exemption. Things that one has to consider while claiming HRA while living with parents are as follows:

• You must live in a rented accommodation.
• Parents must be the owners of the house. You can save tax only if you are paying rent to parent or parents who is owner of the property. If the property is jointly held by father and mother then rent should be paid to both of them.
• Documentation should be clear.You must have a rent agreement.
• Rent receipts: pay rent for the same through cheque/bank transfer. Get the Rent Receipts signed by your parents.
• Rental Income is taxable : They must show the rent received as rental income in their income tax returns.

Are you saving tax as a family when you claim HRA while living with your parents?

As mentioned earlier, Rental Income is taxable. The parent/parents must show the rent received as rental income in their income tax returns.  So you would be saving tax as family and complying with tax rules, if you and your parents are in different income tax slab.   When they are in a lower income bracket or they don’t have any income. Even when the house is jointly owned by both your parents, you can pay them rent proportionately, that will spread the rental income between them and may turn out to be more beneficial.  Your parents can invest this income in can be invested in their name  such as the Senior Citizens Saving Scheme, five year bank fixed deposits or tax saving equity mutual funds or other financial investments that can earn them a higher return based on their age.

If your parents are more than 60 years old (and less than 80 years old), they are not required to pay any tax on income up to Rs 2,50,000. And if they are more than 80 years old their income is exempt up to Rs 5,00,000.

Lets take an example.

• Say you are in 30% income tax slab.
• Your parents are retired and have no other source of income.
• They own the house.
• You live in the house.
• You pay Rs 32,000 a month, that is, Rs 3.84 lakh a year,
• Your parents can deduct 30% i.e 1,15,200 and have to pay tax on only Rs 2,68,800.
• For FY 2015-16, the amount that is over and above the basic Rs 2.5 lakh exempt limit  so you can invest in their name in tax free scheme such as PPF, tax free bonds, and bring down taxable income to 2.5 lakh.

You get a bigger benefit if the house is co-owned by your parents. Then they can split the earning from rent and show separate tax liability. The best part is you can decide how much rent you will pay to your parents provided rent is justified. It will help to save tax till optimum point. 

Rent Receipts 

To allow you exemption on HRA, it is mandatory for the employer to collect proof of rent payment ie rent receipt. The employer will give you exemption on HRA based on these rent receipts. TDS will be adjusted so you don’t have to pay tax on HRA. Your  tax liability will be calculated accordingly.  It would be reflected in Form 16.

Why Should You Outsource Your Bookkeeping Services?

As a small business enterprise you have many things taking up your time. You manage your clients, your accounts, marketing plans and employees. Managing your company’s accounting may seem like one of the easier things that you do, so you may not notice how much time you lose keeping track of income and expenses in a spreadsheet or worse, with pen and paper.

You can’t actually do everything:

There’s a myth that successful entrepreneurs need to be able to do it all. They need to be experts and have intimate knowledge of tax details, and detailed knowledge of the inner workings of every part of their company, which is very untrue.

In fact, no successful company can run this way. In the startup phase, many entrepreneurs do end up picking up a little bit of everything, but as a company grows and expands, one of the crucial steps that entrepreneurs must go through is learning to delegate to other people, so that they can focus on building and growing the company.

Improve performance in other areas:

Outsourcing bookkeeping services is just one way that an entrepreneur can take a set of tasks off their plate, freeing up time for other core business and work. Instead of spending time cutting and pasting into each separate invoice before emailing it out, accounting services manage the process for you.

Proper accounting is a big help to the company as this would provide financial information and standing of the company that will be helpful in making management decision

Don't wait for the tax return to find out how your company is doing:

Knowledge of accounting helps you understand financial records, such as the balance sheet and profit/loss statement, which reveal the worth of your company and whether it is profitable. This allows you to make decisions to correct or adjust any areas of financial concern in your business before you receive your annual tax return. If you wait until you receive your tax return, it may be too late to detect vital errors that could save your business. 

Skilled Worker with the desired knowledge:

Accounting firms, bookkeeping firms and staffing agencies train their employees with extensive testing and offer employees training so you know you are getting a skilled worker. You may not be able to afford to hire an individual with the level of ability you need, and it is also unlikely that you can afford to enhance your employee's skills with additional training. For this reason, outsourcing may offer you the opportunity to bring in a worker with a higher level of expertise than you would have been able to afford otherwise.

For more clarification you can Contact Us

Transactions reported to Income Tax Department

Under income tax laws  institutions are required to report the details of those transactions which you have entered into or registered with them. All the banks, mutual funds and companies issuing shares are required to submit the details. Besides, the office of the registrar where your sale and purchase transaction of immovable properties are registered, is also required to send the details of such transactions to the income tax department. These establishments have your PAN and other details, so there is virtually no way one can sneak past them. The following transactions are required to be informed to the Income Tax Department

1. Cash deposits aggregating to Rs. 1,000,000 or more in a year in any of your savings account in the bank.Banks also includes cooperative banks. Infact it applies any bank or banking institution which comes under the section 51 of Banking Regulation Act, 1949 (10 of 1949). Banks are not required to report in cases where cash exceeding Rs 10 lakh has been withdrawn from the savings account but the cash deposits have not crossed the threshold limit during the financial year.
2. The transaction of payments for credit card if the aggregate payment made during the financial year is Rs 2 lakh or more during the financial year.
3. Investments of Rs 2 lakh (200,000) or more in Mutual Fund
4. Investments of Rs 5 lakh (500,000) or more in bonds or debentures issued by a company or institution
5. Investments of Rs 1 lakh (100,000) or more in the shares issued by a company
6. Purchase or Sale of any immovable property valued at Rs 30 lakh (30,00,000) or more
7. Investments of Rs 5 lakh (500,000) or more in a year for investment in bonds issued by Reserve Bank of India

The values of the transactions mentioned above have to be considered as aggregate in a year and not per transaction.

“You cannot hide any longer …therefore, today the best policy is to admit your income and pay tax” Finance Minister  P Chidambaram had said in Mar 2013.  P Chidambaram said the tax department has information about people’s expenditure patterns and their financial transactions.We have issued notices to 35,000 people saying that on the basis of information we have, you should have filed your returns. Another 35,000 notices are going next week “No. In income tax there is no case for amnesty. Because now almost all returns are online except a small category which was exempt. We have a huge amount of data which is being mined. Therefore, there is no case for amnesty today”

Almost 23 crore of such high-value transactions are under the scanner and notices have already been dispatched to thousands of taxpayers. The notice typically asks the taxpayer to respond in writing. His personal presence is not required. If the system detects a mismatch in income, investments and expenses, it will automatically pick the return for scrutiny.