HRA Rules: A significant change is on the horizon regarding the rules for claiming House Rent Allowance (HRA) for salaried individuals. According to the draft Income Tax Rules 2026, which aim to implement the new Income Tax Act 2025, the Central Board of Direct Taxes (CBDT) has suggested that tenants will now need to disclose their relationship with the landlord in the HRA declaration form. This new tax framework is set to take effect from April 2026. Previously, employees were only required to submit a rent receipt and the landlord’s PAN if the annual rent exceeded the specified limit, but now they must also indicate ‘what the relationship is.’
What do experts think?
At first glance, this change may appear minor, but tax experts argue that it will particularly affect those who claim HRA by renting from their parents, in-laws, or other relatives. Until now, claims were typically accepted if there was a valid rent agreement, the rent was paid through a bank account, and the landlord reported the rental income on their income tax return. However, the introduction of a ‘relationship’ column in the new rules will provide the department with a direct means to track such cases using data analytics.
What are the specifics?
According to the draft rules, the department will be able to easily confirm whether the individual renting the property has reported that income in their ITR and AIS. It will also be possible to check if the property is genuinely in the landlord’s name and if the rent was paid through banking channels. This means that what was previously challenging to detect on a large scale can now be clearly identified with the aid of technology. This is seen as an effort to combat fraudulent or merely paper-based rental agreements.
The rules further clarify that rent paid to parents or other close relatives is deemed valid if the arrangement is authentic. However, TDS rules may apply for rent that exceeds the specified limit. In such instances, the tenant might be required to deduct tax under Section 194-I. Not doing so could lead to penalties.
Opinion of tax advisors
Tax consultants say that if the draft rules are implemented as they are, employees paying rent within their families will have to be more vigilant. Clear rent agreements should be prepared, rent should be transferred only through banks, landlords should disclose income on returns, and property documents should be preserved. The government’s aim is to make the system data-driven and transparent, but it must also be ensured that this does not lead to unnecessary disputes for honest taxpayers. Currently, suggestions have been sought on the draft; the picture will become clear only after the final rules are issued.
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