If you are employed and are in receipt of house rent allowance (HRA) from your employer, you can generally claim an exemption in respect of rental payments made by you against such HRA. While rental payments to a parent are not specifically prohibited, rent paid to relatives may be more prone to scrutiny and litigation and the genuineness of the claim can be questioned.
You will need to submit documentation evidencing the rent payments, such as a rental agreement executed between you and your father, your father's PAN (permanent account number), proof of payment of the rent, along with other documents that your employer may call for (for example, letter to society intimating about tenancy, bank statements, etc.). If the amount of rent per month exceeds ₹50,000, you will be liable to deduct tax of 5% of the annual rent and deposit it with the Indian treasury by 30 April following the financial year, as per the current law in force.
Your father is required to offer the rent received as his income, including his other taxable income. A notional standard deduction of 30% of the annual rental value (calculated as rent received minus actual municipal taxes paid), actual municipal taxes paid (proportionate to the portion of property let out) and any interest on loan availed for purchasing the property (proportionate to the portion of property let out), can be offset from the rental income. Your father will also be eligible to claim the interest on loan availed to purchase the property (proportionate to the self-occupied portion of the house), capped to ₹2 lakh in each tax year.
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