New Income Tax Act 2025: HRA Claims on Rent Paid to Relatives Face Stricter Disclosure Rules
From April 1, 2026, the new Income Tax Act, 2025, will replace the old Income Tax Act, 1961. As part of this change, new draft rules say that if a salaried person claims HRA under the old tax regime for rent paid to family members and pays more than Rs. 1 lakh rent per year, they will have to mention their relationship with the landlord in Form 124.
The government wants to make sure that such rent arrangements are genuine and not just created to reduce tax.
Renting from Family
The draft rules say that if you are paying rent to a family member and claiming tax benefits, you must clearly tell your employer about it.
- First, you must disclose your relationship with the landlord. for example, whether the landlord is your spouse, parent, sibling, or another relative.
- Second, you need to provide the landlord’s details, such as their name, address, and PAN number (if the annual rent is more than Rs. 1 lakh).
- Third, you may have to give information that confirms the property actually belongs to the landlord and that you are genuinely living there.
It is still completely legal to rent a house from your spouse or parents. But the arrangement must be real and not just on paper to save tax.
Under the new system, the tax department may automatically cross-check information. This means:
- The landlord must show the rental income on their income tax return.
- The rent should be paid through bank transfer or other proper banking methods, not in cash.
- Records should show that the relative truly owns the property.
Consequences for Misreporting
If someone hides the real relationship with their landlord, for example, claiming to pay rent to a parent without properly disclosing it or showing fake rent payments just on paper to claim HRA, the tax department can treat it as giving wrong income details. This is considered misreporting.
In case of misreporting, the penalty can be up to 200% of the tax amount that the person tried to avoid paying under Section 439 of the Income Tax Act, 2025 (similar to the current Section 270A).
The Income Tax Department now uses AI systems to match information. If a tenant claims HRA but the landlord does not show that rent as income in their return, the system can automatically detect the mismatch. This may result in scrutiny, notices, or the return being marked as defective.
