The Central Board of Direct Taxes on March 20 notified rules under the Income Tax Act, 2025, effective April 1, 2026, introducing enhanced HRA benefits for salaried taxpayers while mandating disclosure of the landlord-tenant relationship. Salaried individuals will be required to disclose their relationship with the landlord, especially when renting from family members such as parents, spouse, or siblings, if the annual rent exceeds ₹1 lakh.
Additionally, eight cities, Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru, will qualify for a higher HRA exemption limit of 50% of salary, while other locations will continue at 40%.
This new Income Tax Act 2025 will replace the Income Tax Act of 1961. While it does not bring in any new tax rate, it has simplified the language and made understanding complex tax laws easier. It has also removed redundant provisions and reduced the number of sections for easier understanding.
When it comes to real estate, there have been a couple of notable changes. We take a look.
Landlord disclosure effective from April 1, 2026
Starting April 1, 2026, salaried taxpayers must disclose their relationship with the landlord when claiming HRA, especially if renting from family members (parents, spouse, or siblings) and the annual rent exceeds ₹1 lakh. This is not included in the Income Tax Act 2025; instead, it is introduced through the Draft Income Tax Rules 2026 (framed under the Act to operationalise it). A new Form 124 replaces earlier forms (such as 12BB) for HRA claims, requiring landlord details, including name, PAN, and relationship.
Also Read: Can parents, in-laws, or a spouse be your landlord under Draft Tax Rules 2026?
Draft Rule 205, in its true legal character and practical effect, does not impose any statutory prohibition or embargo on salaried employees paying rent to relatives to avail an exemption. One can still pay rent to relatives and claim HRA exemption legally.
Instead, it constitutes a calibrated transparency and disclosure measure intended to fortify tax administration integrity. It mandates explicit declaration of the landlord-tenant relationship in Form 12BA.
“This enables employers and, more significantly, the Income-Tax Department to identify and examine related-party rent arrangements with greater precision and vigilance,” says Tushar Kumar, Advocate, Supreme Court of India.
More cities get higher HRA relief
Another change introduced under the Draft Income Tax Rules had proposed adding Bengaluru, Hyderabad, Pune, and Ahmedabad to this list of cities eligible for the higher HRA exemption limit of 50% of salary, while other cities will continue with the 40% limit.
Salary levels and rents across Hyderabad, Bengaluru, Pune, and Ahmedabad are now quite similar to the earlier four metros. Under the existing income tax rules, HRA exemption for metro city residents (Mumbai, Delhi, Kolkata, and Chennai) is the lowest of the following: Actual HRA received, 50% of Basic + DA, or rent paid minus 10% of Basic + DA. This 50% limit applies only to these 4 cities, with 40% for others. Now, Bengaluru, Hyderabad, Pune, and Ahmedabad will be added to the list.
After the implementation of labour codes, the Basic + DA should be at least 50% of the total salary. Now consider that a person’s salary is ₹30 lakh. The Basic+DA would be ₹15 lakh. Say HRA is ₹9 lakh, and other allowances are ₹6 lakh.
Also Read: ₹20 lakh”>Draft Income Tax Rules 2026: PAN may not be mandatory for property deals below ₹20 lakh
“The rent of a 3BHK in a good colony in Hyderabad or Bengaluru may be around ₹80,000 per month. However, earlier the HRA exemption was limited to 40% of Basic + DA, i.e., ₹6 lakhs in the present example, but now it has been increased to 50% of Basic + DA, i.e., ₹7.5 lakhs in the present example. Hence, an additional allowance of ₹1.5 lakh will be provided. Considering a tax rate of 31.2%, there will be a savings of approximately ₹47,000 for such a taxpayer,” says Vivek Jalan, Partner, Tax Connect Advisory Services, a taxation firm.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
