If you are a salaried employee who claims House Rent Allowance (HRA) every year to save on taxes, this is one of the most important updates you need to read right now.
Starting April 1, 2026, the Draft Income Tax Rules 2026 are coming into effect — and they bring significant changes in how HRA claims are processed, verified, and submitted. The old Form 12BB is being replaced, more cities are now eligible for higher HRA exemptions, and annual disclosures are now mandatory.
Here is the reality: Simply submitting rent receipts will no longer be enough. You will now need to use the new Form 124, disclose your relationship with your landlord, provide their PAN, and furnish complete details every year — or risk having your claim rejected along with a hefty penalty.
Until now, claiming HRA required submitting rent receipts and, for annual rent above Rs 1 lakh, the landlord's PAN — all through Form 12BB. Starting April 1, 2026, Form 12BB is out. The new Form 124 replaces it entirely.
Here is what changes under the updated rules:
Form 12BB Replaced by Form 124: New Income Tax Rule You Must
This is arguably the biggest structural change of HRA Rule 2026. The old Form 12BB, which salaried employees used to declare HRA and other investment proofs to their employer for TDS purposes, has been replaced by the new Form 124.
Form 124 is not just a renamed version — it includes the new mandatory relationship disclosure requirement and aligns with the government's push for full transparency in rental income reporting.
Important: You must now submit Form 124 to your employer's HR or accounts department for TDS calculation. Make sure your employer is aware of this change and has updated their internal processes accordingly.
Under the updated rules, here is what the new Form 124 will require:
Information Required
New Requirement (From April 1, 2026)
Landlord's Full Name
Mandatory
Landlord's Complete Address
Landlord's PAN
Mandatory if annual rent exceeds Rs 1 lakh
Relationship Disclosure
NEW — Must declare if landlord is a relative and specify the relationship
If PAN is unavailable
Name + Address + Declaration that PAN does not exist
Annual Submission
NEW — Fresh declaration required every financial year
More Cities Now Eligible for 50% HRA Exemption — Big Update
Here is some genuinely good news buried in the 2026 rules: the list of cities qualifying for the higher 50% HRA exemption has been significantly expanded.
Previously, only four metros — Delhi, Mumbai, Kolkata, and Chennai — qualified for the 50% exemption. Starting April 1, 2026, four more cities have been added to this list:
The full list of cities now eligible for 50% HRA exemption: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad.
If you live and work in any of these eight cities, you can now claim HRA exemption at 50% of your basic salary — instead of the earlier 40% that applied to non-metro employees. For salaried employees in Bengaluru, Hyderabad, Pune, and Ahmedabad, this is a meaningful tax-saving upgrade.
This is the most common mistake people make: Many salaried employees live in their parents' house and pay them rent to claim HRA. This arrangement is completely legal — but starting April 2026, the relationship must be clearly mentioned in Form 124.
Pay close attention: If you pay rent to your parents, it is crucial that they report that rent as income in their own Income Tax Return (ITR). If they do not, the Annual Information System (AIS) will flag a mismatch — and your HRA claim could land under scrutiny.
The Income Tax Department now uses AIS and other digital cross-referencing tools to match data from both the tenant and the landlord. There is very little room left for discrepancies to go unnoticed.
Tax analysts point out that for years, a section of salaried taxpayers exploited the HRA exemption by submitting fake rent receipts or by showing inflated rent figures. In many cases, the so-called landlord never actually declared the rent income.
Under the new system:
What Happens If You Submit Wrong Information? — Tax + Penalty Both
If you submit incorrect information in Form 124 or make a fraudulent HRA claim, here is what you are looking at:
Real-world example: Say you falsely claimed Rs 1.5 lakh in HRA and saved Rs 45,000 in tax. At 200% penalty, you could end up paying Rs 90,000 as a fine — that is double the amount you tried to save.
Do not wait until the last minute. Start gathering these documents today:
1. Always pay rent through your bank account: Cash payments are extremely difficult to prove. Use NEFT, UPI, or a cheque — it is your strongest evidence if your claim is ever questioned.
2. If you pay rent to your parents, ensure they file their ITR: They must show that rental income in their tax return. A mismatch in AIS will directly put your claim under the scanner.
3. Submit Form 124 before your employer's deadline: Most companies ask for this in January or February. Missing the deadline means your employer will deduct higher TDS — and recovering it later is a hassle. And remember — you need to do this every year, not just once.
HRA Rule 2026 is a structural shift — the government's message is clear: the tax system is moving toward full transparency, and the window for inflated or fake claims is closing fast.
The introduction of Form 124, expanded city eligibility for the 50% exemption, mandatory relationship disclosures, and the requirement for annual fresh declarations all point in the same direction: more accountability, better cross-verification, and a cleaner system for everyone.
If your HRA claim is genuine, there is absolutely nothing to worry about. Keep your documents in order, fill Form 124 accurately, and if you are paying rent to a family member, make sure they are reporting that income in their ITR.
The truth is: these new rules will only hurt those who have been misusing the system. For honest taxpayers, it is just a bit of extra paperwork — nothing more.
No, HRA claims are not being discontinued. Only the disclosure requirements are being strengthened and the form has changed. If your claim is legitimate, you have nothing to worry about — just ensure your paperwork is in order and you are using the new Form 124.
Form 124 is the new form that replaces the old Form 12BB for HRA and investment declarations submitted to your employer for TDS purposes. The key difference is that Form 124 includes the mandatory landlord relationship disclosure and requires fresh submission every year.
Yes, this arrangement is completely legal. However, from April 2026, you must clearly declare the relationship in Form 124. Your parents must also report that rental income in their own ITR — failing to do so can trigger scrutiny.
From April 1, 2026, eight cities qualify for the higher 50% HRA exemption: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad. Earlier, only the first four metros were included. Employees in the remaining cities continue to be eligible for 40% exemption.
If your annual rent exceeds Rs 1 lakh and the landlord does not have a PAN, you must submit their name, complete address, and a signed declaration confirming that they do not hold a PAN.
Yes. Unlike the earlier system where a one-time or infrequent declaration might have sufficed in practice, the new rules explicitly require a fresh declaration in Form 124 every financial year.
In cases of deliberate misreporting or fraud, the penalty can go up to 200% of the evaded tax amount. For standard under-reporting, the penalty is 50%. Either way, it far outweighs any tax saving from a fraudulent HRA claim.
Most employers collect these declarations in January or February of each financial year. Check with your HR department for the specific deadline — missing it can lead to excess TDS deductions that you will have to claim back later.
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