The Centre has released the Income Tax Rules, 2026, giving clarity on tax provisions that will apply from April 1. These rules support the new Income‑tax Act, 2025, which comes into force for the financial year 2026‑27. Taxpayers will need to follow these rules when they file their returns by July 31.
HRA Exemption: Expanded Cities
One of the major updates affects salaried employees claiming the House Rent Allowance (HRA) exemption.
Under the new rules, the list of cities that qualify for higher HRA exemption limits is larger. Earlier, only a few metro cities were treated as eligible; now, eight cities qualify for the higher limit: Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru.
The expanded list of cities recognises that many fast‑growing urban areas have high rents.
HRA Exemption: How It Works
HRA exemption will be calculated as the least of the following:
- Actual HRA received.
- Rent paid minus one‑tenth of salary.
- 50% of salary in the listed cities, or 40% in other cities.
This change means more salaried taxpayers living in the expanded list of cities may get a bigger HRA tax benefit than before.
New Disclosure Requirement: Form 124
A significant compliance change is the requirement to disclose the relationship with the landlord. Under the new rules, employees claiming HRA must fill Form No 124 and provide details of their relationship with the landlord when rent is paid, especially where the landlord is a relative.
This disclosure replaces old norms where only rent receipts and landlord PAN were typically submitted.
The disclosure requirement seeks to reduce misuse of HRA claims by making it easier for tax authorities to match rent payments with reported landlord income.
Paying rent to a relative, such as parents, is still allowed under tax law. But under the new rules, tenants must declare their relationship with the landlord and ensure corresponding rental income is reported by the landlord on their tax returns.
ALSO READ: Taxpayers, Take Note: 10 Major Income Tax Updates From April 1
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