Overview
- From April 1, 2026, under the Income Tax Act, 2025, HRA claims above Rs 1 lakh a year must be reported in Form 124 with the landlord’s name, address, PAN, and the claimant’s exact relationship.
- Rent paid to relatives remains permissible if supported by a formal rent agreement, bank transfers rather than cash, and the landlord reporting the income in their return.
- Tax authorities plan automated cross-checks of bank trails, property ownership records, and the landlord’s declared rental income, with AI systems expected to flag mismatches.
- Failure to disclose or making fictitious claims can be treated as misreporting, attracting penalties of up to 200% of the tax avoided under Section 439.
- The draft also proposes expanding the 50% HRA exemption city list to include Bengaluru, Hyderabad, Pune, and Ahmedabad, subject to finalization.