As CBDT prepares to launch it Income Tax Act, 2025The draft Income Tax Rules, 2026 introduce a procedural change that could significantly change the way salaried employees claim HRA.
While public attention has primarily focused on the expansion of the 50 per cent HRA bracket in cities like Ahmedabad, Bengaluru, Pune and Hyderabad, a more consequential development is implicit in draft Rule 205.
> New disclosure requirement
Historically, employees claiming HRA were required to submit the permanent account number of the landlord where the annual rent exceeded the prescribed limit.
Draft Rule 205, read with the proposed Form No. 124 (earlier Form 12BB), now mandates disclosure of “relationship, if any, with the landlord”.
This is not a minor compliance increase.
This creates a structured data point that enables the tax administration to systematically identify related-party rental arrangements among salaried taxpayers.
>Why this disclosure changes the risk equation
Rent paid to parents or other relatives has long been a legitimate tax planning arrangement, provided the transaction is genuine and properly documented.
Mandatory disclosure of relationships now serves as a direct trigger for deeper investigations.
With clear relationship mapping, the department can deploy analytics for cross-validation:
One. Income matching: Whether the rental income appears in the relative's AIS and income tax returns.
B. Verification of property ownership: Whether the declared landlord actually owns the property.
C. Verification of funds flow: Are rent payments made consistently through banking channels.
What was previously difficult to detect at scale is now becoming visible through algorithms.
> Litigation Exposure
Under section. Section 270A, giving wrong information about income can lead to a penalty of up to 200 percent of the tax.
By introducing a dedicated and mandatory column for “relationship”, Draft Rule 205 significantly weakens any defense of oversight or inattention in cases involving artificial family tenancy claims.
This is clearly designed as an enforcement trigger.
> Practical considerations for salaried taxpayers-
As implementation approaches, taxpayers paying rent to relatives should consider the following:
A. Execute a formal rental agreement.
B. Make all fare payments exclusively through banking channels.
C. Ensure consistent declaration of rental income by the landlord.
D. Maintain complete documentation and payment trails.
It will become increasingly difficult to protect informal systems.
The Draft Rules 2026 reflect sweeping changes in tax administration:
declaration-based compliance
For data-driven validation.
For compliant taxpayers, this is a procedural stricture.
For aggressive or engineered HRA structures, this prompts enhanced investigation and possible litigation.
The big question is whether this will streamline actual compliance or create new controversies.