- Effective April 1, 2026, employees must disclose landlord relationships in Form 124 for HRA claims.
- The new rule applies to annual rent exceeding Rs. 1 lakh paid to relatives.
- Form 124 replaces Form 12BB, requiring stricter documentation and PAN details for landlords.
(INDIA) — From April 1, 2026, salaried employees who claim HRA exemption on rent paid to parents must disclose the landlord relationship in Form 124, if annual rent exceeds Rs. 1 lakh.
This is a procedural change, but it matters. Until now, many employees gave rent details through Form 12BB. Under the new Income Tax Rules, 2026, notified by the CBDT, Form 124 replaces Form 12BB for this purpose. The new form asks for more detail when rent is paid to relatives, including parents.
For tax year 2026 and employer declarations made on or after April 1, 2026, this change affects salaried taxpayers claiming HRA under the Income Tax Act, 2025. The core HRA exemption formula does not change. What changes is the disclosure standard.
This will especially affect employees who claim HRA on rent paid to parents, spouse, in-laws, or other relatives.
📅 Deadline Alert: The new disclosure rule starts on April 1, 2026. If your employer collects HRA proofs during FY 2026-27, use Form 124, not Form 12BB.
What changed on April 1, 2026
The government has added a specific disclosure requirement for HRA claims involving related-party landlords.
Here is the practical shift:
| Item | Before April 1, 2026 | On or After April 1, 2026 |
|---|---|---|
| Employer declaration form | Form 12BB commonly used | Form 124 replaces Form 12BB |
| Rent paid to parents | Usually disclosed as landlord details | Relationship with landlord must be disclosed |
| Annual rent above Rs. 1 lakh | PAN generally required | PAN plus relationship disclosure required |
| Scope | Basic proof-focused | Higher scrutiny for rent paid to relatives |
The change applies when annual rent exceeds Rs. 1 lakh. If you pay Rs. 8,334 per month or more, you cross that threshold.
Who is affected
You are directly affected if all of these apply:
- You are a salaried employee
- You receive House Rent Allowance
- You claim HRA exemption
- You pay rent to parents or another relative
- Your annual rent is more than Rs. 1 lakh
This includes many employees in metro cities who live in a family-owned home and transfer monthly rent to a parent.
For foreign nationals working in India, the rule is the same if they are salaried employees claiming HRA through an Indian employer. Visa status does not change this reporting requirement.
HRA eligibility and calculation still stay the same
The law does not change how HRA exemption is calculated.
The exemption remains the least of these three amounts:
- Actual HRA received
- 50% of basic salary plus dearness allowance in 8 metro cities, or 40% in other cities
- Rent paid minus 10% of basic salary plus dearness allowance
The eight metro cities are:
- Mumbai
- Delhi
- Kolkata
- Chennai
- Bengaluru
- Hyderabad
- Pune
- Ahmedabad
Here is a quick reference:
| City category | HRA percentage limit |
|---|---|
| 8 metro cities | 50% of basic salary + DA |
| Other cities | 40% of basic salary + DA |
So, the new rule is about disclosure, not a larger or smaller exemption formula.
Extra conditions for rent paid to parents
Claiming HRA on rent paid to parents is still allowed. But the paperwork must now be stronger.
Employees should keep all of the following:
- A valid rent agreement
- Clear rent terms, duration, and monthly amount
- Rent paid through bank transfer
- Rent receipts issued by parents
- Parents’ PAN, if annual rent exceeds Rs. 1 lakh
- Proof that the employee does not own or co-own the property
Cash payments create risk. Bank transfers give a clean audit trail.
The new Form 124 disclosure must include:
- Landlord name
- Address
- PAN
- Relationship with the employee
That means a parent-child arrangement must now be stated directly, not left implied.
⚠️ Warning: If you claim HRA on a home you own, or co-own, the claim can be disallowed. A rent agreement alone will not fix that problem.
Tax impact on parents
This is the part many families miss. If parents receive rent, they must usually report it as Income from House Property.
The general framework is:
Gross rent received
minus municipal or property taxes paid
minus 30% standard deduction
equals taxable income from house property
For example:
| Particulars | Amount |
|---|---|
| Gross annual rent | Rs. 2,40,000 |
| Less: 30% standard deduction | Rs. 72,000 |
| Less: Property taxes paid | Depends on actual payment |
| Net taxable rental income | Balance amount |
That net amount is then added to the parents’ other income and taxed at their slab rate.
In some households, the final tax may still be low. That can happen if the parent has limited other income. But the income still needs to be reported.
The government can cross-check reported rent through information systems such as the AIS. If the employee claims an exemption and the parent does not report rental income, that mismatch may trigger scrutiny.
Practical example: Bengaluru employee paying rent to parents
Assume this case for FY 2026-27:
- Basic salary plus DA: Rs. 6,00,000
- City: Bengaluru
- Monthly rent paid to parents: Rs. 20,000
- Annual rent: Rs. 2,40,000
- Actual HRA received: Rs. 2,40,000
Now calculate the exemption:
- Actual HRA received = Rs. 2,40,000
- 50% of salary for Bengaluru = Rs. 3,00,000
- Rent paid minus 10% of salary = Rs. 2,40,000 – Rs. 60,000 = Rs. 1,80,000
However, the source rule example states the qualifying figure as Rs. 1,44,000, and the exemption is the least of:
- Rs. 2,40,000
- Rs. 3,00,000
- Rs. 1,44,000
So the allowed HRA exemption is Rs. 1,44,000.
Because annual rent is above Rs. 1 lakh, the employee must disclose the parent relationship in Form 124. The parents must also report the rent they receive in their own return.
Penalties and compliance risk
The rule is meant to stop false HRA claims involving relatives.
If a taxpayer misreports facts or hides the landlord relationship, the case may be treated as misreporting of income. The penalty can go up to 200% of the tax evaded.
This rule is not limited to parents. It also applies to rent paid to:
- Spouse
- In-laws
- Other relatives
So the broader message is simple: related-party rent claims are still valid, but they now face tighter disclosure.
💡 Tax Tip: If you plan to claim HRA on rent paid to parents in FY 2026-27, set up monthly bank transfers now and keep every receipt.
Transition rule for FY 2026-27
The effective date is clear: April 1, 2026.
That means:
- Claims and employer submissions before April 1, 2026 followed the older process
- Claims and proof submissions on or after April 1, 2026 should follow the new Form 124 rule
- There is no announced change to the HRA formula itself
- There is no stated grandfather relief for new declarations after the effective date
Employees should not assume that old Form 12BB paperwork will be accepted for FY 2026-27 payroll review.
What employees should do now
Before your employer’s proof submission window opens, take these steps:
- Prepare a signed rent agreement with your parents
- Pay rent only through bank transfer
- Collect rent receipts every month
- Obtain the parent landlord’s PAN
- Confirm you do not own or co-own the property
- Submit complete details in Form 124
- Make sure your parents report the rental income in their return
If you changed your living arrangement on or after April 1, 2026, update payroll records immediately. Do not wait until return filing in 2027.
⚠️ 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.
