Draft Income Tax Rules 2026 Propose More Disclosures To Claim HRA
Mandatory disclosure of landlord relationship; higher HRA cap for more cities
Mumbai: If you are a salaried person and have been claiming House Rent Allowance (HRA) for rent paid to your family members like parents, spouse, or in-laws, you may soon have to disclose your "relationship with the landlord" and provide more disclosures under the new Income Tax Rules, 2026. The new framework is set to replace the Income-tax Act, 1961 from April 1, 2026.
The objective is to help the tax department identify fictitious family rent agreements for tax evasion.
Under the proposed norms, if your total rent paid to a landlord exceeds Rs 1 lakh per year, you must declare the relationship according to Draft Rule 205, read with the proposed Form No. 124 (which replaces the earlier Form 12BB used for salary declarations). This includes rent paid to spouses, parents, siblings, or other relatives.
Until now, employers mostly accepted rent receipts and landlord’s PAN. As a result the tax department could only verify if the HRA claim is genuine upon scrutiny. But now the system will be able to automatically cross check and identify mismatches instantly without manual scrutiny.
The draft rules introduce specific details that must be furnished to the employer:
Relationship Status: Mandatory disclosure of whether the landlord is a spouse, parent, sibling, or other relative.
Rent amount
Landlord Details: Name, address, and PAN (if rent exceeds Rs one lakh).
Property Confirmation: Information to verify property ownership and actual residence.
This does not mean that the rules prohibit rent payments to family members. You may still continue claiming HRA if the rent arrangement is genuine. However, the new disclosure triggers automated cross-verification using data analytics to match:
Landlord's ITR: The relative must report the rental income in their own tax filing.Any mismatch between the tenant’s HRA claim and the landlord’s declared rental income could trigger scrutiny.
Banking Trail: Payments should be made through banking channels rather than cash to prove a real transfer of funds.
Ownership Records: Verification that the relative actually owns the property being rented.
PENALTIES—Failure to disclose the relationship or claiming HRA through “paper entries" could be treated as misreporting of income. Under Section 439 of the Income Tax Act, 2025 corresponding to existing Section 270A, penalties may reach up to 200 per cent of the tax sought to be evaded.
More cities can now get the Housing Rent Allowance (HRA)
And now the good news. Currently, employees living in Mumbai, Delhi, Kolkata and Chennai can claim HRA exemption of up to 50 per cent of their salary, while those residing in all other cities are limited to 40 per cent. The draft guidelines have proposed to add Bengaluru, Hyderabad, Pune, and Ahmedabad to this list-cities that have emerged as major employment hubs over the past decade and have witnessed sharp increases in housing rents. This means that people who work in these areas will now be able to get a bigger part of their HRA that is tax-free.
