Salaried employees often claim House Rent Allowance (HRA) for rent paid to family members, such as parents or spouses, under the current tax regime. However, under the proposed draft Income-tax Rules, 2026, such arrangements may soon undergo closer scrutiny, especially if the rent exceeds Rs 1 lakh in a financial year. The new rules, if implemented, would require taxpayers to disclose their relationship with the landlord along with other details like the landlord’s name, address, and PAN number. This change aims to increase transparency and prevent misuse of HRA claims, but it does not ban paying rent to family members.
Tax experts have clarified that the draft rules do not prohibit renting from relatives, provided the arrangement is genuine. To ensure the HRA claim is valid, the rent must be supported by a proper rental agreement, payments must be made through banking channels, and the landlord must declare the rental income in their own tax returns.
Under the proposed rules, if the total rent paid exceeds Rs 1 lakh, the taxpayer will be required to disclose not only the rent receipts and PAN details but also the relationship with the landlord. This new requirement could significantly increase the scrutiny of HRA claims, allowing tax authorities to cross-check income declarations, property records, and banking transactions with greater efficiency using data analytics.
Failure to disclose the required relationship could lead to penalties for misreporting, as per Section 439 of the Income Tax Act, 2025, which may impose fines of up to 200 percent of the tax evaded in cases of false claims. However, genuine taxpayers with proper documentation need not worry, as the aim of the rule is to ensure transparency, not to restrict legitimate HRA claims.
For those paying rent to family members, it is crucial to maintain a written agreement, ensure payments are made through bank transfers, and make sure the landlord reports the rental income in their tax returns. With proper documentation, the process of claiming HRA remains straightforward, even when the landlord is a relative.
