The Central Board of Direct Taxes (CBDT) has introduced a procedural change in the DITR (Draft Income-tax Rules), 2026 that significantly affects salaried taxpayers claiming House Rent Allowance (HRA) exemptions. This change is part of the Income-tax Act, 2025 implementation and is expected to come into force from 1 April 2026.
What Rule 205 Requires
Under Draft Rule 205, employees claiming HRA will now have to disclose not just the landlord’s PAN and rent details, but also their relationship with the landlord, if any. Previously, disclosure was limited to the landlord’s PAN and address when annual rent exceeded prescribed limits. This means that when you submit HRA documentation to your employer or in your income tax return process:
• You must clearly state how you are related to the landlord (for example, spouse, parent, sibling, or unrelated third party).
• This disclosure will be part of the new Form No. 124, which is proposed to replace the older Form 12BB for submitting evidence related to salary exemptions and deductions.
Why This Disclosure Matters
The government’s objective with this mandatory relationship disclosure is to curb artificial or engineered HRA claims, especially in cases where rent is paid to relatives — a scenario that has sometimes been used for tax planning. By analysing “related-party” rent arrangements will now be easier with structured data on relationships.
Without this data point, taxpayers in familial rental situations could have previously claimed HRA without clear documentation of the nature of the arrangement. With Rule 205, related-party rent claims will trigger deeper scrutiny by the tax authorities.
What Taxpayers Should Do
While availing HRA under the updated rules, tax experts suggest the following best practices:
a. Prepare a formal rent agreement — especially if rent is being paid to a relative.
b. Make rent payments through verifiable means (bank transfer, UPI, cheque).
c. Ensure the landlord reports rental income in their own tax filing.
d. Maintain full evidence of the rental relationship and payments to justify the claim to the department.
These measures help demonstrate that the arrangement is genuine and not engineered solely for tax benefits.
Risk of Misreporting:
The draft rule bolsters enforcement beyond administrative scrutiny:
• If a taxpayer misreports the relationship or fails to provide accurate details, it could trigger deeper scrutiny or disputes.
• Under the provision of Section 270A of the Income-tax Act, misreporting income or details can lead to penalties of up to 200% of the tax saved due to the incorrect claim.
This means that compliance is not just procedural — inaccurate or missing disclosures could carry heavy financial consequences.
This change forms part of a broader move by the Indian tax administration from a declaration-based compliance system to a data-driven verification model. By capturing systematic data on landlord relationships and payments, the department aims to reduce mismatches and false claims in HRA exemptions.
Draft Income-tax Rule 205 mandates that salaried taxpayers must disclose their relationship with the landlord when claiming HRA. This new requirement, via Form 124, goes beyond furnishing basic details like PAN and rent amount. The change is intended to improve transparency, deter artificial claims (especially among family rentals), and enable more effective tax compliance and verification by the income tax department.
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