I am fresh out of college working in Bangalore, and have not much idea about the income tax system in India. Here is my salary structure:
- Basic - Rs. 12,50,000 pa
- HRA - Rs. 6,25,000 pa
I looked up about tax exemption on HRA and as per my current understanding, it is minimum of three(the actual HRA, 50% of base salary, house rent paid less of 10% of base salary). The first two in my case evaluate to 6,25,000. I live with my mom, who's a housewife and has no source of income.
Now, consider the scenario:
I pay 62,500 per month as rent to my mom. So the third component also becomes 6,25,000. My mom now has a income of 7,50,000(6,25,000 + 1,25,000(10% of base)) which falls in a lower tax bracket and pays tax on it.
Things I want to know:
- Does it seem that this will work, as in legally it sounds okay to me, but will the income tax people have issues with it(like me paying rent to my mom).
- What are the things I need to take care of?
- I read about some tax benefits a person receives on income from rent, but couldn't get it properly. Can someone explain it in some detail.
Thanks a ton in advance.