Salaried taxpayers who claim House Rent Allowance (HRA) under the old tax regime will soon face tighter reporting rules. Under the Draft Income Tax Rules, 2026, , especially when the rent is paid to parents, spouse, siblings, or other relatives.
The change is part of the new Income Tax Act, 2025 framework, which will replace the decades-old 1961 law from April 1, 2026. The move aims to curb misuse of HRA through fake rent receipts or informal arrangements.
Until now, employees mainly needed rent receipts and the landlord’s PAN to claim HRA. The proposed rules go a step further. If the total rent paid exceeds Rs 1 lakh a year, taxpayers must declare not only the landlord’s name, address, and PAN, but also their exact relationship with the landlord in the prescribed forms.
This means taxpayers must explicitly state if the rent is being paid to a parent, spouse, sibling, or any other relative. The tax department wants clearer visibility into family-based rental arrangements, which have often been used for tax planning.
The government has not banned paying rent to family members. Such arrangements remain valid and legal. However, tax officials now expect proper documentation and a clear money trail.
In practical terms, there should be a formal rent agreement, and payments should be made through bank transfers rather than cash. Equally important, the landlord or the family member receiving the rent must declare it as rental income in their own income tax return. This helps ensure the transaction is real and not just created to reduce tax.
Officials say the focus is shifting from simply showing rent receipts to verifying whether the arrangement reflects an actual rental relationship at a reasonable market rate.
Taxpayers who fail to disclose the relationship or make false claims could face serious consequences. If the tax department finds that the rent claim is incorrect or unsupported, it may treat it as misreporting of income.
Under the new Income Tax Act, penalties can go up to 200% of the tax that was wrongly avoided, along with interest and possible tax notices. Taxpayers may also receive notices if there is a mismatch between the rent claimed and the income reported by the landlord.
The upcoming changes mean salaried individuals claiming HRA, especially when paying rent to family members, must keep proper documents and ensure full disclosure. With stronger reporting and data checks, incomplete or informal arrangements may no longer pass scrutiny.
For many taxpayers, this is a reminder to review their HRA claims and ensure everything is genuine before the new rules take effect in April 2026.