News: New Income Tax Rules: Landlord Relationship for HRA-20-03-2026

The Central Board of Direct Taxes on March 20 notified rules under the Income Tax Act, 2025, effective April 1, 2026. For salaried taxpayers they bring a wider HRA benefit along with a requirement to disclose their relationship with the landlord.

The disclosure applies when HRA is claimed and annual rent exceeds Rs 1 lakh, and matters especially when the landlord is a family member such as a parent, spouse or sibling. The requirement is not in the Income Tax Act 2025 itself. It comes through the Draft Income Tax Rules 2026 framed to operationalise the Act. A new Form 124 replaces earlier forms such as 12BB for HRA claims and asks for the landlord’s name, PAN and relationship.

Paying rent to relatives is still allowed. Draft Rule 205 places no prohibition on salaried employees doing so and claiming the exemption. It is a transparency measure that mandates explicit declaration of the landlord-tenant relationship in Form 12BA. Tushar Kumar, Advocate, Supreme Court of India, said this lets employers and, more significantly, the Income-Tax Department identify and examine related-party rent arrangements with greater precision.

The second change concerns the exemption ceiling. Eight cities, Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru, will qualify for an HRA exemption limit of 50% of salary, while other places stay at 40%. Under existing rules, the exemption for residents of Mumbai, Delhi, Kolkata and Chennai is the lowest of actual HRA received, 50% of Basic + DA, or rent paid minus 10% of Basic + DA. Bengaluru, Hyderabad, Pune and Ahmedabad are now being added because salaries and rents there are similar to the four older metros.

Vivek Jalan, Partner, Tax Connect Advisory Services, illustrated the gain. After the labour codes, Basic + DA should be at least 50% of total salary, so a person earning Rs 30 lakh would have Basic + DA of Rs 15 lakh, with HRA of, say, Rs 9 lakh and other allowances of Rs 6 lakh. A 3BHK in a good colony in Hyderabad or Bengaluru may rent for around Rs 80,000 a month. Earlier the exemption was capped at 40% of Basic + DA, or Rs 6 lakh. It is now 50%, or Rs 7.5 lakh, an additional Rs 1.5 lakh. At a tax rate of 31.2%, that saves approximately Rs 47,000.

The Income Tax Act 2025 replaces the Income Tax Act of 1961. It introduces no new tax rate but simplifies language, drops redundant provisions and reduces the number of sections.