The government is tightening verification of tax deductions. One important change affects House Rent Allowance (HRA), a deduction widely used by salaried individuals.
Under the Draft Income-tax Rules 2026, employees claiming HRA will now have to disclose their relationship with the landlord in Form 124.
This small-looking change actually converts HRA from a "self-declared deduction" into a data-verified deduction.
Let's understand what it means in simple terms.
Why This Rule Is Introduced
Many HRA claims in India happen within families:
- Paying rent to parents
- Paying rent to spouse
- Paying rent to relatives while living in own property
- Showing artificial rent payments for tax saving
Until now, employers mostly accepted rent receipts and PAN details. The tax department could verify only during scrutiny, which rarely happened.
Now the system will automatically cross-check:
| Verified With | What They Check |
|---|---|
| Landlord ITR | Did landlord declare rental income? |
| Property records | Does landlord own the property? |
| Banking trail | Was rent actually paid? |
| Relationship disclosure | Is this a family arrangement? |
This means the department will identify mismatch instantly without manual scrutiny .
What Exactly Changes in Form 124
Earlier employees submitted Form 12BB to employer.
Now Form 124 replaces it and asks an additional critical detail:
"Relationship with the landlord, if any"
So while claiming HRA you must provide:
- Landlord name
- Address
- PAN / Aadhaar
- Rent amount
- Relationship with landlord (new mandatory field)
Does This Mean Paying Rent to Parents Is Not Allowed?
No, it is still allowed.
But now it must be real and provable.
You can claim HRA for rent paid to parents if:
- Parents own the property
- You actually live there
- You transfer rent via bank
- Parents show rental income in their ITR
You cannot claim HRA if:
- Property is yours but registered in relative name only for tax saving
- Rent is paid in cash and returned back
- Parents don't declare rental income
- Fake rent receipts are created
Penalty Risk (Very Important)
If the department detects false claim:
Penalty up to 200% of tax under under-reporting provisions
Earlier you could say "I didn't know". Now disclosure is mandatory, so ignorance cannot be used as defence.
Practical Examples
Genuine Case (Allowed)
Rahul works in Chennai and lives in his father's house.
- Transfers Rs 15,000 rent every month via bank
- Father declares rental income
- Rental agreement exists
HRA claim valid
Risky Case (Will Be Caught)
Amit lives in his own flat but shows rent to mother for tax saving.
- No actual payment
- Mother doesn't report income
System mismatch → penalty possible
What Employees Should Do Now
Step-by-Step Compliance
- Make a rental agreement
- Pay rent through bank transfer only
- Take landlord PAN
- Ensure the landlord files ITR with rental income
- Give the correct relationship in Form 124
Impact on Taax Planning
Earlier HRA was a planning tool.
Now it becomes a compliance-based deduction.
Good news:
- Genuine taxpayers remain safe
- Fake deductions will reduce
- Automated scrutiny reduces future notices
Final Takeaway
The government is not removing HRA benefits, it is removing unverifiable claims.
If your rent transaction is real, nothing changes.
- If it exists only on paper, it will now be detected automatically.
- HRA is moving from declaration → verification → accountability.
CAclubindia
