Big changes could soon impact how salaried employees claim House Rent Allowance (HRA).
Under the draft Income Tax Rules 2026, introduced to implement the new Income Tax Act 2025, the Central Board of Direct Taxes (CBDT) has proposed a new requirement.
Employees may now have to declare their relationship with their landlord while claiming HRA.
The new tax framework is expected to come into effect from April 2026.
Until now, employees only needed to submit rent receipts and the landlord’s PAN if the annual rent crossed the prescribed limit.
But if the draft rules are finalized, simply submitting documents won’t be enough.
You may also have to clearly mention whether the landlord is your parent, relative, or someone else.
Why This Change Matters
At first, this may seem like a small update.
But tax experts say it could significantly affect people who pay rent to parents, in-laws, or other family members.
Earlier, HRA claims were generally accepted if:
A valid rent agreement was in place
Rent was paid through bank transfer
The landlord declared rental income in their tax return
Now, by adding a “relationship” column, the tax department will be able to use data analytics to track such cases more easily.
This means family-based rental arrangements may come under closer scrutiny.
Stronger Verification Through Technology
Under the draft rules, authorities will be able to verify multiple details quickly.
For example:
Whether the landlord has declared the rental income in their Income Tax Return (ITR) and Annual Information Statement (AIS)
Whether the property is actually registered in the landlord’s name
Whether rent payments were made through proper banking channels
Earlier, detecting fake or paper-only rental arrangements on a large scale was difficult.
With improved technology and data systems, such mismatches could now be flagged automatically.
The government’s aim appears to be reducing fraudulent HRA claims and increasing transparency.
What About Rent Paid to Parents?
The draft rules make one thing clear: paying rent to parents or close relatives is still allowed, provided the arrangement is genuine.
However, tax deduction rules may apply if the rent exceeds the prescribed limit.
In such cases, tenants might need to deduct TDS under Section 194-I.
If TDS is not deducted where required, penalties may apply.
Also, under Section 270A, misreporting or hiding income could attract a penalty of up to 200 percent of the tax due.
What Tax Advisors Are Saying
Tax consultants believe that if the rules are implemented in their current form, employees will need to be more careful.
They advise:
Drafting clear rent agreements
Paying rent only through bank transfers
Ensuring the landlord reports rental income properly
Keeping property ownership documents safely
While the government wants to make the tax system more data-driven and transparent, experts say it is equally important that honest taxpayers do not face unnecessary disputes.
For now, these are draft rules.
Public suggestions have been invited, and the final version will clarify how strictly these changes will be applied.
