The New HRA Claim Form proposed under the Draft Income-tax Rules, 2026 introduces a major compliance requirement for salaried employees. As per the draft released by the Income Tax Department, employees claiming House Rent Allowance (HRA) will now be required to disclose their “relationship with the landlord.” The move aims to curb misuse of family rental arrangements and prevent tax evasion through artificial rent agreements.
The New HRA Claim Form has been introduced through Draft Rule 205 and will be reflected in the updated Form No. 124. The proposal forms part of broader reforms under the evolving income tax compliance framework and is currently open for stakeholder feedback.
Why the New HRA Claim Form Has Been Proposed
The Income Tax Department observed that some taxpayers claim HRA benefits by paying rent to close family members without genuine rental transactions. In certain cases, rent is shown as paid to parents or relatives primarily to reduce tax liability while the financial arrangement lacks commercial substance.
The New HRA Claim Form seeks to increase transparency by mandating disclosure of the relationship between the employee and the landlord. By requiring this information upfront, authorities can better assess the legitimacy of HRA claims and identify high-risk cases for scrutiny.
This reform is aligned with the government’s broader objective of tightening compliance without increasing tax rates.
What Changes Under Draft Rule 205
Under Draft Rule 205 of the Draft Income-tax Rules, 2026, the New HRA Claim Form will include a specific field requiring employees to declare whether the landlord is a parent, spouse, sibling, or other relative.
The updated Form No. 124 will incorporate:
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Mandatory disclosure of relationship with landlord
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Additional verification details
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Structured reporting format for HRA claims
While paying rent to parents is not illegal, the New HRA Claim Form ensures that such claims are transparent and backed by proper documentation, including rent receipts, PAN details of landlord (where applicable), and proof of actual payment.
Impact on Salaried Employees
The New HRA Claim Form may significantly impact salaried employees who currently claim HRA exemptions under Section 10(13A) of the Income Tax Act. Those living in rented accommodation owned by family members will need to ensure proper documentation and genuine rent transfers through banking channels.
Tax experts suggest that genuine rental arrangements will not face difficulty. However, artificial arrangements created solely for tax benefits may attract departmental scrutiny.
Employees opting for the old tax regime and claiming HRA exemption will be particularly affected by the New HRA Claim Form requirement. Those under the new tax regime, where most exemptions are not available, may see limited impact.
Government’s Objective: Preventing Family Rental Evasion
The primary purpose of the New HRA Claim Form is to curb family rental evasion. By capturing relationship details, the tax department can use data analytics to flag suspicious patterns such as:
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Inflated rent paid to relatives
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Identical addresses for employee and landlord without genuine tenancy
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Absence of rental agreement or bank transfer proof
The reform is designed to promote fairness in the tax system and ensure HRA benefits are claimed only in legitimate cases.
What Taxpayers Should Do Now
Although the New HRA Claim Form is currently part of draft rules, salaried employees should begin reviewing their rental arrangements. Proper rental agreements, bank payment trails, and landlord PAN details will become increasingly important once the rule is finalized.
Tax professionals recommend early compliance preparation to avoid last-minute complications when the Draft Income-tax Rules, 2026 are formally notified.
The New HRA Claim Form marks a significant step toward strengthening compliance in HRA claims. By mandating disclosure of relationship with landlord, the Income Tax Department aims to prevent misuse while allowing genuine claims to continue without disruption.
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