New Transparency Norms: Under the Draft Income-tax Rules 2026, salaried employees must now disclose their relationship with their landlord when claiming HRA for rent paid to relatives.
India’s salaried taxpayers who claim House Rent Allowance (HRA) may now need to be more careful while filing their income tax returns.
Under updated compliance requirements in the Income Tax Return (ITR) forms, individuals claiming HRA are required to disclose whether they are paying rent to a relative. The move aims to increase transparency and reduce misuse of HRA benefits.
This development is important for millions of salaried employees across India who stay in properties owned by parents or other family members and claim HRA exemption under the Income Tax Act.
Here is what has changed, why it matters, and what taxpayers should keep in mind before filing returns for the current assessment year.
Why HRA Claims Are Under Greater Scrutiny
HRA exemption is allowed under Section 10(13A) of the Income Tax Act, 1961, along with Rule 2A of the Income Tax Rules.
It allows salaried employees to reduce taxable income if they receive HRA from their employer, live in rented accommodation, and pay actual rent.
In recent years, tax authorities have increased checks on HRA claims, especially in cases where rent is paid to close relatives such as parents.
While renting from parents is legal and permitted under tax rules, authorities have noticed cases where fake rent receipts were used to claim exemptions without real rent payments.
To prevent misuse, updated ITR formats now require disclosure of the relationship between tenant and landlord when rent is paid to a related person.
Taxpayers must clearly mention if the landlord is their parent or another relative.
What Has Changed in the ITR Forms
In the latest ITR forms notified for the assessment year, taxpayers claiming HRA must provide the name of the landlord, PAN of the landlord if annual rent exceeds ₹1 lakh, address of the rented property, amount of rent paid, and relationship with the landlord.
Earlier, there was no specific requirement to disclose the relationship in the return form. The change strengthens verification and cross-checking by tax authorities.
If rent is paid to parents, the parent must declare the rental income in their own income tax return.
Failure to do so may trigger notices or scrutiny.
Renting from Parents Is Still Allowed
It is important to clarify that renting from relatives is not illegal.
Tax experts confirm that HRA can be claimed if there is a genuine rental agreement, rent is actually paid, payment is made through banking channels, and the landlord declares rental income.
However, taxpayers cannot claim HRA if they own the house in which they live.
Rent paid to a spouse generally does not qualify for HRA exemption, as legal interpretations have questioned such arrangements.
How HRA Exemption Is Calculated
HRA exemption is the least of three amounts: actual HRA received from employer; rent paid minus 10% of salary; or 50% of salary for metro cities and 40% of salary for non-metros.
Salary includes basic salary and dearness allowance if it forms part of retirement benefits.
For example, if a person working in Mumbai receives ₹20,000 per month as HRA and pays ₹25,000 as rent, the exemption will be calculated based on the prescribed formula.
Because HRA reduces taxable income, it remains an important benefit under the old tax regime.
Impact on Old vs New Tax Regime
HRA exemption is available only under the old tax regime.
Those opting for the new tax regime under Section 115BAC cannot claim HRA benefits.
As taxpayers evaluate which regime to choose, stricter disclosure norms may influence their decision.
Employees who were claiming HRA without formal rental arrangements may now need to reassess their situation.
What Tax Authorities Are Checking
The Income Tax Department has strengthened digital verification systems.
Authorities can now cross-check landlord PAN with rental income declared, verify high HRA claims against salary levels, and flag repeated claims involving close family members.
If discrepancies are found, taxpayers may receive notices seeking clarification or documentation.
It is advisable to keep rent agreements, rent receipts, bank transfer proof, and landlord PAN details ready.
If rent exceeds ₹50,000 per month, TDS provisions under Section 194-IB may apply.
Common Mistakes to Avoid
Paying rent in cash without proper receipts is a common error.
Claiming HRA without an actual rental agreement is another mistake.
Some taxpayers fail to ensure that parents report rental income in their returns. This mismatch can be detected during assessment.
Experts advise that rent paid to parents should be transferred through bank, supported by a formal agreement, and reflected in the landlord’s tax return.
Inflating rent to increase exemption can invite penalties.
Why This Update Matters Now
The disclosure requirement reflects a broader shift toward stronger tax compliance.
With advanced data analytics, the department is focusing on areas where exemptions are often misused.
HRA claims reduce taxable income and are widely used by salaried individuals.
By requiring relationship disclosure, authorities aim to ensure that only genuine claims are accepted.
Impact on Salaried Employees
India has over 7 crore income tax return filers, based on recent official data. A large share of them are salaried individuals.
Many claim HRA as part of tax planning under the old regime.
For employees in metro cities such as Delhi, Mumbai, Chennai, and Kolkata, where rent is high, HRA exemption can significantly lower tax liability.
However, the new compliance requirement means rental arrangements with family members must be properly documented and genuine.
Employees should treat such arrangements as formal financial transactions.
Will This Lead to More Notices?
Tax professionals say genuine taxpayers should not be concerned.
If rent is actually paid and income is properly declared, disclosing the relationship will not create issues.
However, those using fabricated rent receipts without real transactions may face scrutiny.
Consistency in reporting is key to avoiding problems.
What You Should Do Before Filing ITR
Before filing your return, check whether you are opting for the old or new regime.
If claiming HRA, ensure documents are complete.
If rent is paid to parents, confirm they have included rental income in their return.
Verify landlord PAN details if annual rent exceeds ₹1 lakh.
Careful reporting can help avoid refund delays and notices.
Final Takeaway
The requirement to disclose relationship with the landlord while claiming HRA is a compliance update, not a new tax.
Renting from relatives remains legal under Indian tax law.
However, exemptions must be supported by genuine transactions and proper reporting.
For salaried taxpayers, especially those living in family-owned homes, reviewing rental arrangements before filing returns is now essential.
Transparency and documentation will ensure smooth processing and reduce the risk of scrutiny.
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Last Updated on: Tuesday, February 24, 2026 11:41 am by Economic Edge Team | Published by: Economic Edge Team on Tuesday, February 24, 2026 11:41 am | News Categories: Business
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