Claiming HRA? New rental rules kick in from 1 April — what are the changes and what happens if they are ignored?

A key change in House Rent Allowance (HRA) rules is set to come into force from 1 April, under which salaried individuals claiming HRA tax benefits should mandatorily report their relationship with the landlord.

According to the draft income tax rules, 2026, taxpayers will need to clearly disclose their relationship with the landlord on Form 124 when they pay rent, especially if the landlord is a family member. This includes rent paid to spouses, parents, siblings, or other relatives.

This requirement applies to every taxpayer seeking HRA benefits if the total rent paid to a landlord exceeds ₹1 lakh per year. In such a case, furnishing the landlord's PAN becomes mandatory.

On 1 April, the Income Tax Act 2025 will also come into effect. The new tax system was introduced in the previous budget to replace the age-old Income Tax Act, 1961, in India.

What is the goal behind this change?

According to Priyank Sharma, a Sebi-registered research analyst, the rule is meant to improve transparency and prevent misuse of rent-related tax benefits, such as HRA, in the Annual Information System.

“In many cases, false rent claims were made using non-existent landlords or inflated rent amounts. By requiring the landlord’s PAN when annual rent exceeds ₹1 lakh, the tax authorities can verify whether the rental income is being correctly reported by the landlord,” he said.

In case the landlord's PAN is not available, a self-declaration along with their name and address is required, stating that the person does not have a PAN, as per circular No. 8/2013 dated 10 October 2013.

Sharma further noted that the new rule creates a cross-check between the tenant and the landlord, thus reducing the chances of tax evasion and ensuring that only genuine claims are allowed.

200% penalty for misreporting? Here's what the rules say

If a taxpayer does not properly disclose the landlord-tenant relationship or fails to provide the required details, the rent claim, such as HRA, can be disallowed during assessment, leading to higher taxable income and additional tax liability, Sharma warned, advising taxpayers to ensure compliance.

“The tax authorities may also scrutinise the claim, and if it is found to be incorrect or false, a penalty can be imposed under Section 270A of the Income Tax Act, which ranges from 50% of the tax payable on under-reported income to 200% in cases of misreporting,” he said.

According to Sharma, the Income Tax Department verifies such relationships through document checks and system-based data matching. Details reported in the taxpayer’s ITR are cross-verified using the landlord’s PAN through the Online Annual Information Statement and other reporting systems.

“Additionally, rent receipts, agreements and payment proofs may also be reviewed. Any mismatch or unusual claim can be flagged by analytics systems and taken up for scrutiny,” he added.

What documents should you produce or keep ready?

Taxpayers should keep basic rent-related documents ready to support their claim. These include:

• Rent receipts
• A copy of the rent agreement
• Form 12BB
• Proof of rent payment, such as bank statements or transfer records
• The landlord’s PAN, if the annual rent exceeds ₹1 lakh

Can you claim HRA if you are paying rent to family members?

A person can claim an HRA exemption if they are paying rent to their family members. However, it is important to ensure that the arrangement is disclosed as rental income on your family member's income tax return.

It's also important to note that taxpayers can claim both interest deduction and HRA exemption if they own a housing property in one city but pay rent in another city due to work purposes, according to ClearTax.

The rule to declare the relationship with the landlord “increases compliance responsibility on tenants, especially those claiming higher HRA,” Sharma said, adding that paying rent to close family members is allowed by the I-T Department, but only if the arrangement is real and backed by proper documentation and actual money transfer.

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