The Draft Income Tax Rules 2026 propose a more structured reporting framework for employee tax deduction claims, with Draft Form No. 124 introducing detailed disclosure requirements for House Rent Allowance (HRA) and other deductions. The move is aimed at improving transparency, strengthening documentation standards and reducing disputes during tax assessments.
The proposed form, issued as part of the broader compliance overhaul by the Central Board of Direct Taxes, outlines comprehensive reporting requirements that employees must submit to employers for accurate tax deduction under the new regime.
What Is Draft Form 124
Draft Form 124 is a statement designed to capture detailed particulars of employee claims for tax deductions, including HRA, leave travel concessions, interest on housing loans, and deductions under various chapters of the Income Tax law.
The form will act as a standardised declaration to support tax deduction at source calculations by employers and ensure proper record keeping.
Key Changes Proposed for HRA Claims
Detailed Landlord Information Mandatory
Under the draft form, employees claiming HRA will need to disclose extensive landlord details including name, address, PAN, Aadhaar number, and relationship with the landlord, if any.
Disclosure of Actual Rent Paid
Employees will be required to report the exact amount of rent paid during the tax year, with provision to repeat entries where rent is paid to multiple landlords.
PAN Requirement Threshold
The draft reiterates that PAN must be furnished where annual rent exceeds ₹1 lakh, reinforcing existing compliance norms.
Supporting Documents Required
Employees will need to attach supporting documents such as rent agreements as annexures to substantiate claims.
Broader Reporting Requirements Beyond HRA
Apart from HRA, the draft form also captures details relating to:
- Leave Travel Concessions (LTC) claims
- Interest on borrowed capital including lender details
- Deductions under specified sections
- Other supporting documentation
This indicates a shift toward comprehensive declaration-based compliance for employee tax benefits.
Objective Behind the Proposed Changes
Tax experts say the proposed format aims to standardise information collection and enable better verification of claims through improved documentation. By requiring detailed disclosures, authorities intend to curb incorrect claims while simplifying employer compliance processes.
Impact on Employees and Employers
If finalised, employees will need to maintain more detailed records and supporting documents to claim exemptions like HRA. Employers, on the other hand, may need to update payroll processes to incorporate the new declaration format.
The move is expected to reduce scrutiny cases arising from incomplete or inconsistent information.
What Happens Next
The draft rules and forms are currently open for stakeholder feedback before final notification. Once implemented, the new reporting framework is expected to apply from the relevant tax year notified by the government.
Taxpayers are advised to review documentation practices to ensure readiness for the proposed changes.
Why This Matters
HRA remains one of the most widely claimed exemptions for salaried taxpayers. The introduction of a detailed declaration form signals a shift toward tighter verification and greater accountability in tax deduction claims.
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