The Centre has officially clarified that House Rent Allowance (HRA) is not admissible where both spouses are Central Government employees stationed at the same station and either is allotted Government accommodation. According to a written reply by Minister of State for Finance Pankaj Choudhary to an unstarred question in the Rajya Sabha on August 4, 2026, the clarification addresses long-standing confusion among government employees about HRA eligibility in such situations. This clarification ends speculation over the applicability of HRA to serving central government employees. The latest development came after Rajya Sabha MP Sumitra Balmik raised the issue seeking the rationale underlying the existing policy whereby HRA is deducted from both spouses when both are Government Servants and are residing together in accommodation allotted by the Government.
As explained by Choudhary, HRA is granted to Central Government employees who are not provided with Government accommodation to compensate them for expenditure incurred on hiring residential accommodation. When both spouses are Government employees stationed at the same station and either is allotted Government accommodation, the family is considered to have been provided with Government accommodation. Consequently, no expenditure is incurred by the other spouse on accommodation, hence HRA is not admissible to them. The government's position reinforces that HRA is intended only to compensate employees for rental expenses, and once government accommodation is allotted to either spouse at the same station, the family is deemed to have been provided housing, leaving no basis for an HRA claim by the other spouse.
While cash rent payments do not automatically disqualify HRA claims, poor documentation can lead to scrutiny and potential rejection of benefits. According to tax experts, rent payments above ₹10,000 in a day are disallowed as expenses for business assessees under Section 40A(3), while rent receipts for cash above ₹5,000 should carry a revenue stamp under Stamp Act requirements. Landlords cannot accept ₹2 lakh or more in cash from one person in a day under Section 269ST of the Income-tax Act, though this restriction applies to the landlord receiving the money, not the tenant. Tenants paying higher value rent must also comply with TDS provisions if monthly rent exceeds ₹50,000, regardless of payment method. To successfully claim HRA despite cash payments, experts recommend obtaining rent receipts with landlord name, property address, payment amount, and mode of payment, maintaining a rent agreement, and keeping documentation showing cash withdrawals.
According to tax experts, rent payments between spouses are not permitted under tax laws due to the relationship dynamics when couples take up residence together. Such transactions are considered sham transactions that can create trouble during tax scrutiny. Proof of rent paid must be submitted through rent receipts, with only two receipts required - one at the beginning of the year and one towards the end of the financial year. These receipts should have a one rupee revenue stamp affixed with the signature of the person who received the rent, along with details such as the rented residence address and amount paid. The least of three options determines HRA exemption: actual HRA received, actual rent paid minus 10% of basic salary, or 50%/40% of basic salary depending on location.
In response to queries about potential policy changes, Choudhary stated that the Government has received no representations from Government employees or their service associations seeking reconsideration of this policy. Additionally, he confirmed that the Government proposes no review of the policy to make it more equitable for couples where both spouses are in Government service. Responding to whether such representations had been made, his response was 'No'. This indicates the policy remains unchanged despite employee concerns about fairness and recent parliamentary inquiries about making the rule more equitable for dual-government-employee households.
