Amit, a salaried professional in Mumbai, pays an annual rent of ₹1.8 lakh to his father and claims HRA. From April 1, 2026, his tax filings require greater scrutiny and disclosure. He must clearly mention the landlord-tenant relationship, provide his father’s PAN, and ensure rent is transferred through banking channels. A formal rental agreement and consistent documentation become essential to support his claim.
Amit now needs to complete Form 124, replacing Form 12BB, while maintaining a clear digital trail of payments. If his documents are incomplete or inconsistent, his HRA claim could be rejected, increasing taxable income and reducing take-home pay.
If Amit fails to disclose the relationship or if the rental arrangement appears notional—such as no actual money transfer or a mismatch with his father’s reported income—it may trigger scrutiny. In such cases, the claim can be disallowed, with penalties under Section 270A ranging from 50 per cent to 200 per cent of the tax payable.
Disclosure mandatory for HRA claims
“If you’re a salaried employee claiming House Rent Allowance (HRA), there’s an important update coming. Starting April 1, 2026, if your annual rent exceeds ₹1 lakh, you’ll need to clearly mention your relationship with the landlord, especially if you’re paying rent to a family member,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.
It is a common practice to pay rent to family members to avail HRA deductions. However, that needs documentary evidence that the arrangement is genuine. This typically includes a formal rental agreement, rent receipts, and the landlord’s PAN details if the annual rent exceeds ₹1 lakh. However, now that will come with scrutiny.
Salaried taxpayers will need to adopt a more rigorous documentation approach, including comprehensive rental agreements, digital payment trails, landlord PAN details, and explicit disclosure of the landlord-tenant relationship.
“The emphasis is on traceability, and rent payments routed through banking channels and reflected in the landlord’s tax filings will strengthen the credibility of HRA claims. Incomplete or inconsistent documentation, particularly around identity and relationship disclosure, could increase the risk of scrutiny and disallowance,” says Madhura Samant, Managing Partner, Elarra Law Offices.
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Key implications for salaried employees effective April 1, 2026
HRA benefits will still exist, but stricter checks mean that if your documents aren’t proper, your claim could be rejected. This can increase your taxable income, lowering your take-home pay.
“Employees must now complete Form 124 (replacing Form 12BB), which requires maintaining rigorous documentation, such as rental agreements and bank-based rent payments, particularly when paying family members,” says Soni.
Failure to accurately disclose the relationship or report the income could trigger an audit. Fraudulent claims can lead to rejection and penalties under Section 270A of the Income Tax Act, ranging from 50% to 200% of the tax payable on under-reported income.
Renting from family is still allowed, with full disclosure
“The revised rules do not prohibit renting from family members. However, such arrangements must meet the test of genuineness, supported by formal agreements, actual payment flows, and full disclosure of the relationship,” says Samant. So, if you are renting from a family member, you can still legally claim HRA exemptions, but you need to follow the rules
HRA claims are likely to be rejected where transactions are merely notional, such as the absence of a real rent transfer, insufficient supporting documentation, or inconsistencies between the tenant’s claim and the landlord’s reported income.
The regulatory intent is to allow legitimate rental arrangements while discouraging artificial setups designed solely for tax advantage.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics.
