New Income Tax Act 2025: HRA on Rent Paid to Relatives – What Salaried Taxpayers Must Now Disclose

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February 25, 2026

On February 25, 2026

New Income Tax Act 2025: HRA on Rent Paid to Relatives – What Salaried Taxpayers Must Now Disclose

From April 2026, claiming House Rent Allowance on rent paid to parents or other relatives will no longer be a simple declaration exercise. The proposed changes under the New Income Tax Act 2025 tighten disclosure norms and aim to curb misuse of HRA benefits.

Let’s break this down clearly.

What Is Changing?

If a salaried individual pays rent to a relative and claims HRA exemption, they will now be required to:

Explicitly disclose the relationship with the landlord
Provide proper documentation supporting the rental arrangement
Ensure the transaction is genuine and traceable

Earlier, many employees used to pay rent to parents and claim HRA, which is perfectly legal if the arrangement is genuine. The issue was misuse. Some cases involved paper transactions without actual rent movement.

The new rules focus on transparency, not prohibition.

Is Paying Rent to Parents Still Allowed?

Yes. It is still allowed.

You can pay rent to your parents and claim HRA, provided:

The house is owned by the parent
You actually reside there
Rent is actually paid through banking channels
A proper rent agreement exists
The parent declares rental income in their ITR

What this really means is the department wants substance over form. If it’s genuine, you are safe.

Why Is the Government Tightening the Rule?

There are three major reasons:

Fake HRA claims where no actual rent was paid
Circular transactions within family to reduce taxable income
Data mismatch between employee claims and landlord disclosures

With increased digital reporting and AIS tracking, the department can now match HRA claims with landlord PAN and return filings.

This amendment is about data alignment.

Practical Impact on Salaried Individuals

If you are planning to claim HRA on rent paid to relatives:

Execute a proper rent agreement
Transfer rent via bank, not cash
Keep rent receipts signed
Ensure landlord reports rental income
Avoid inflated rent amounts

As a Chartered Accountant or tax advisor, this is a good opportunity to educate clients. Many people assume family transactions are informal. Tax law does not think that way.

Risk of Non-Disclosure

Failure to properly disclose relationship or misreporting can lead to:

Disallowance of HRA exemption
Tax demand with interest
Possible penalty for misreporting

With AI-driven scrutiny and pre-filled data systems, mismatches are easier to detect than before.

Final Thought

Paying rent to relatives is not illegal. But claiming HRA casually without documentation is risky now.

From April 2026 onward, compliance quality will matter more than tax planning creativity.

If the transaction is real, document it.
If it is artificial, rethink it.

That’s the difference between smart tax planning and unnecessary litigation.

Summary

From April 2026, claiming HRA on rent paid to parents or other relatives will come under sharper scrutiny. The New Income Tax Act 2025 does not ban such claims, but it makes disclosure of the relationship with the landlord mandatory and demands proper documentation.

What this really means is simple: only genuine rental arrangements will survive.

If you are paying rent to a relative, you must ensure:

A valid rent agreement exists
Rent is paid through banking channels
Rent receipts are maintained
The landlord declares rental income in their ITR
The relationship is clearly disclosed

The tax department is tightening rules to prevent fake or paper transactions within families used purely to reduce tax liability. With digital reporting, AIS tracking, and PAN-based matching, mismatches can easily trigger scrutiny.

Bottom line:
HRA on rent paid to relatives is still allowed, but casual or artificial claims can lead to disallowance, tax demand, interest, and penalty.

Substance will now matter more than structure.

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