Income Tax Rule 205 Requires Landlord Relationship Disclosure for HRA Claims

(INDIA) — Indian-origin workers and families with U.S. tax filings are facing a two-country compliance moment: India’s proposed Income Tax Rule 205 would tighten HRA Claims documentation, while U.S. courts have temporarily blocked a controversial IRS–DHS data-sharing arrangement that raised fears for ITIN filers.

This filing guide focuses on tax year 2026 (returns filed in 2027). It explains who needs to file, which forms matter, and how to document rent and identity items cleanly on both sides. It also separates India’s Landlord Relationship Disclosure proposal from U.S. tax rules, which remain governed by IRS law and confidentiality rules in Internal Revenue Code Section 6103.

Who needs to file for tax year 2026 (filed in 2027), and the most critical requirement

If you are filing in the U.S.

You generally must file a U.S. federal income tax return for tax year 2026 if you are:

• A U.S. tax resident under the Green Card Test or Substantial Presence Test, and your gross income meets IRS filing thresholds for 2026.
• A nonresident alien with U.S.-source income that is effectively connected with a U.S. trade or business, or certain fixed U.S. income.
• An ITIN filer reporting U.S. income, or filing to claim a refund, credits, or treaty benefits.

Most critical requirement: determine your U.S. tax residency status first. That decision controls whether you report worldwide income (resident) or generally U.S.-source income (nonresident). The primary IRS reference is IRS Publication 519 (U.S. Tax Guide for Aliens) at irs.gov/pub/irs-pdf/p519.pdf.

If you are claiming rent-related benefits in India

India’s Draft Rule 205 is not a U.S. rule. It is an Indian proposal that would change what employees must disclose when claiming House Rent Allowance (HRA). If you are employed in India, or have India payroll, watch this closely.

India’s Draft Income Tax Rule 205: Landlord Relationship Disclosure in HRA Claims

India’s Draft Income-tax Rules, 2026 (under the Income-tax Act, 2025) include Draft Rule 205. It would require Landlord Relationship Disclosure when employees claim HRA Claims.

The practical change is documentation and disclosure, not a new U.S. reporting item. Still, it matters for many Indian nationals who split time, payroll, or housing between India and the U.S.

• Disclosure requirement: employees must disclose the relationship with the landlord, if any.
• New form: the draft introduces Form No. 124, described as replacing the older Form 12BB practice for rent/HRA evidence.
• Policy goal: flag related-party rental arrangements, such as rent paid to parents or other relatives. The aim is to reduce artificial structures.
• Penalty risk: misreporting can trigger penalties under India’s Section 270A, described as up to 200% for misreporting.

⚠️ Warning: If you claim rent paid to a relative, keep proof of payment and a real rental arrangement. Related-party rent claims tend to get extra scrutiny.

Official source and timeline for Indian Rule 205

The draft rules were released February 7, 2026 by India’s Central Board of Direct Taxes (CBDT) under the Ministry of Finance. The draft is part of the Draft Income-tax Rules, 2026, which implement the Income-tax Act, 2025.

For official updates, use India’s tax portal incometaxindia.gov.in and CBDT communications.

U.S. context: IRS–DHS data sharing and immigration-tax developments (what it is, and what it is not)

Many immigrants saw “Rule 205” headlines at the same time as U.S. reporting about IRS–DHS data sharing. These are separate issues.

In the U.S., the dispute concerns whether a Treasury–DHS memorandum can allow ICE to submit names for address and identity cross-checks against IRS records, including some ITIN filers’ information. Opponents argue this conflicts with Internal Revenue Code Section 6103, which protects tax return confidentiality.

This is not a change in how you compute tax. It is about privacy, permitted disclosures, and enforcement limits.

U.S. official statements and a key court ruling (February 2026)

Two February 2026 events matter for immigrant filers:

• Judicial ruling (Feb 6, 2026): U.S. District Judge Indira Talwani blocked the IRS–DHS MOU. The order directed DHS/ICE to stop using return information obtained through the MOU.
• IRS declaration (Feb 11, 2026): an IRS court declaration admitted a privacy breach. It stated 47,000 of 1.28 million names were verified. It also said remediation was requested.

As of February 19, 2026, the injunction is in place and an appeal is pending in the D.C. Circuit.

Filing eligibility checklist (U.S. and documentation-driven items)

Use this checklist before you start your tax year 2026 U.S. return.

For U.S. international reporting rules, start at irs.gov/individuals/international-taxpayers and the IRS forms page at irs.gov/forms-pubs.

Key reporting thresholds (FBAR and Form 8938)

These rules affect many Indian immigrants with accounts in India.

FBAR is not filed with the IRS. It is filed with FinCEN, but the IRS enforces many FBAR rules. Form 8938 is an IRS form filed with your return.

Step-by-step: how to file your U.S. return for tax year 2026 (filed in 2027)

Step 1: Determine U.S. residency and your correct return

Common paths:

• Resident alien: file Form 1040.
• Nonresident alien: file Form 1040-NR.
• Dual-status: you may file a dual-status return. This often means Form 1040 with a Form 1040-NR statement attached, or vice versa. This is technical.

IRS guidance is in Publication 519 (p519.pdf).

Step 2: Gather income forms and match withholding

Typical documents:

• Form W-2 for wages.
• Form 1099 series for interest, dividends, contract work, or brokerage items.
• Form 1042-S if you had scholarship income or treaty-based withholding.

Make sure withholding on W-2 and 1099 matches what you report.

Step 3: Claim deductions and credits you qualify for

For tax year 2026, standard deduction amounts are:

• $14,600 (Single)
• $29,200 (Married filing jointly)

Nonresident aliens filing Form 1040-NR generally cannot claim the standard deduction, with limited exceptions under current rules. Use Pub. 519 to confirm.

Step 4: Add international reporting if you meet thresholds

Common add-ons:

• FinCEN Form 114 (FBAR) if foreign accounts exceed $10,000 aggregate at any time.
• Form 8938 if you exceed FATCA thresholds.
• Other forms may apply, such as Form 3520, Form 5471, or Form 8865, depending on your situation.

These forms carry steep penalties when missed. Do not guess.

Step 5: File, pay, and keep proof

File electronically when possible. Keep copies of:

• The filed return and all schedules.
• Proof of payment.
• Account statements supporting FBAR and Form 8938 entries.

If you later need immigration paperwork, the IRS tax return transcript is often requested. Many applicants use it for affidavit of support work tied to Form I-864 filings. USCIS updates appear in the USCIS newsroom at uscis.gov/newsroom.

Deadlines and extension options for tax year 2026 (filed in 2027)

📅 Deadline Alert: File or extend by April 15, 2027. File Form 4868 for an extension to October 15, 2027, but pay any expected balance by April 15.

Documents you’ll need (U.S. return + rent/HRA-related records)

Core U.S. tax documents

• Passport, visa, and I-94 travel history.
• Social Security number or ITIN.
• W-2, 1099 forms, and 1042-S if applicable.
• Prior-year return copy, if available.
• Bank account details for direct deposit.

International and foreign account documents

• Year-end and maximum-balance statements for India accounts.
• Details of fixed deposits, mutual funds, and demat holdings.
• Foreign tax paid records, if you will claim a credit.

Housing and rent documentation (for cross-border clarity)

Even though India’s Income Tax Rule 205 is Indian, housing documentation often overlaps with U.S. immigration and banking checks.

• Lease agreement and rent receipts.
• Bank transfers proving rent paid.
• Landlord identity details and PAN for Indian compliance.
• Notes on the relationship to landlord for Landlord Relationship Disclosure, if the draft becomes final.

H-1B-specific tax considerations (common issues for Indian nationals)

Many Indian professionals transition from F-1 to H-1B.

• Residency: H-1B workers often become U.S. tax residents under the Substantial Presence Test.
• FICA taxes: H-1B wages are generally subject to Social Security and Medicare withholding. F-1 students may have a FICA exemption for certain periods, under the “exempt individual” rules in Pub. 519.
• Treaties: India has a U.S. tax treaty, but treaty positions can be technical. Treaty claims can require Form 8833 in some cases. Use IRS Publication 901 (U.S. Tax Treaties).

Separating “Income Tax Rule 205” from U.S. enforcement fears (what filers should do now)

For U.S. tax year 2026 filings, the best protection remains basic compliance:

• File the correct return type (1040 vs. 1040-NR).
• Report income accurately and keep supporting records.
• File required foreign reporting on time.

As of Feb 19, 2026, a federal injunction blocks ICE from using information obtained through the challenged MOU for civil immigration enforcement. The case is still active, and policy can change.

For official updates, verify through:

• IRS newsroom: irs.gov/newsroom
• DHS releases: dhs.gov/news
• USCIS newsroom: uscis.gov/newsroom

IRS resources and when to get professional help

Start with official IRS references:

• Publication 519 (aliens and residency): irs.gov/pub/irs-pdf/p519.pdf
• International tax portal: irs.gov/individuals/international-taxpayers
• Forms and instructions: irs.gov/forms-pubs
• Filing season updates: irs.gov/newsroom

Professional help is strongly recommended if you have any of these:

• Dual-status year, treaty tie-breaker, or Form 8833 treaty position.
• Foreign assets requiring Form 8938, FBAR, Form 3520, Form 5471, or Form 8865.
• Mixed U.S.-India payroll, or uncertainty around rent claims and documentation, including India’s Draft Income Tax Rule 205 and HRA Claims.

File or extend by April 15, 2027, file FBAR by April 15, 2027 with the automatic extension to October 15, 2027, and keep rent and identity records ready for both tax and immigration paperwork.

⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.