Many salaried employees pay rent to their parents, relatives or even a spouse and claim House Rent Allowance (HRA) under the old tax regime. However, under the draft Income-tax Rules, 2026, such arrangements may soon come under closer scrutiny.
If the proposal is implemented, taxpayers claiming HRA for rent paid to relatives may have to clearly state their relationship with the landlord.
The proposal is aimed at increasing transparency and preventing misuse of HRA claims.
WHAT THE DRAFT RULE SAYS
Under the proposed rules linked to the Income Tax Act, 2025, salaried individuals may have to disclose their “relationship with the landlord” in Form 124 if the total rent paid during the financial year exceeds Rs 1 lakh.
This disclosure will be required along with other details such as the landlord’s name, address and Permanent Account Number (PAN).
The idea is not to stop genuine arrangements but to ensure that HRA claims are backed by proper documentation.
PAYING RENT TO FAMILY IS STILL ALLOWED
Tax experts are clear that the draft rule does not prohibit paying rent to parents, spouse or other relatives. You can continue to claim HRA, provided the arrangement is genuine.
This means there should be a valid rental agreement in place. The rent should be transferred through proper banking channels. Most importantly, the person receiving the rent must declare that rental income in their own income tax return.
If these basic conditions are met, claiming HRA should not become a problem simply because the landlord is a family member.
WHAT DETAILS MAY NEED TO BE DISCLOSED
If the draft rule is implemented as proposed, taxpayers may need to provide the landlord’s name, address, PAN and their relationship with the landlord when filing the required form.
Earlier, the focus was mainly on rent receipts and PAN details in high-value cases. Now, the relationship itself will become a reportable item.
WHY THIS CHANGES HRA SCRUTINY
Mandatory disclosure of relationships is likely to increase scrutiny. Once the relationship is clearly mentioned, tax authorities can use data analytics to cross-check income declarations, property ownership records and banking transactions.
What was earlier difficult to track at scale may now become easier to examine through automated systems. In simple terms, the system will be able to match whether rent paid by one person is correctly shown as rental income by another.
WHAT HAPPENS IF YOU DO NOT DISCLOSE
Not disclosing a required relationship can be treated as withholding a material fact. If the non-disclosure is deliberate and linked to a false HRA claim, it may be treated as misreporting of income.
Under Section 439 of the Income Tax Act, 2025, a penalty of up to 200 percent of the tax sought to be evaded can be imposed in cases of misreporting.
That said, genuine taxpayers who are paying real rent and maintaining proper documentation need not worry. The key is that the arrangement must be real, properly recorded and fully disclosed.
In other words, if you are paying rent to your parents or spouse, ensure there is a written agreement, rent is paid through bank transfers and the landlord reports the rental income in their return.
The proposed disclosure requirement is more about transparency than restriction. With proper paperwork and honest reporting, claiming HRA should remain straightforward, even when the landlord is a family member.
