New HRA Disclosure Rules Proposed: Employees Must Disclose Relationship With Landlord

In a significant move aimed at curbing misuse of House Rent Allowance (HRA), the Draft Income-tax Rules, 2026 have proposed a new compliance requirement for salaried employees. If implemented, employees claiming HRA may soon be required to disclose their relationship with the landlord, particularly in cases where rent is paid to relatives.

This proposed change forms part of Draft Rule 205 and is expected to be incorporated in the revised employee declaration form (likely replacing the existing Form 12BB framework).

What Is Being Proposed?

Under the draft framework, employees claiming HRA would need to furnish:
• Name of the landlord
• Address of the rented property
•PAN of the landlord (where applicable)
• Nature of relationship with the landlord (if any)

The objective is clear to bring greater transparency in "family rental arrangements" and enable data-driven scrutiny.

Why This Change?

For years, tax authorities have observed instances where salaried individuals claim HRA by submitting rent receipts for properties owned by parents or close relatives sometimes without genuine transfer of rent.
While renting from relatives is legally permissible, fabricated arrangements and fake rent receipts constitute misreporting under tax law.
The Income Tax Department now relies heavily on data analytics, PAN-based cross verification, AIS reporting, and property ownership databases. Disclosure of relationship would allow automated cross-checks between:

• Employee's HRA claim
• Landlord's declared rental income
• Property ownership records
• Financial transaction trails

Also Read: Rs 590 Crore Fraud: IDFC FIRST BANK Management Responds

Is Renting from Parents/Relative Illegal?

Important Clarification

At present, this requirement is part of draft rules and not yet enacted law. Final implementation will depend on notification by the Central Board of Direct Taxes (CBDT).
However, the message is clear, transparency in tax reporting is tightening.

The Way Forward

• Employees should review their HRA arrangements carefully. If rent is paid to relatives, ensure:
•  Documentation is complete
• Payments are traceable, the landlord's tax compliance is aligned
   

Tax planning remains legitimate. Fabrication does not.

As compliance systems become more technology-driven, proactive accuracy is far better than reactive explanation.

Author Bio: CA Kunal Mishra is a Practising Chartered Accountant, partner in SBM & Co. He serves as a Virtual CFO for growing businesses, advising on financial strategy, digital transformation and risk management. His expertise spans audit, FEMA compliance, FP&A, and technology-driven finance operations.