New Income Tax Rules 2026: Paying Rent to Parents or Spouse? Follow Rules to Avoid 200% Tax Penalty

Salaried employees claiming HRA should take note: paying rent to parents, spouse, or other relatives to save tax now comes with stricter reporting rules under the draft Income Tax Rules, 2026. Non-disclosure or misreporting can invite penalties of up to 200% of tax evaded.

Big Changes in HRA Rules

Starting April 1, 2026, the Income Tax Act, 2025 framework will enforce detailed disclosures for House Rent Allowance (HRA) claims. Employees will no longer only need rent receipts and the landlord’s PAN. If the annual rent exceeds Rs 1 lakh, taxpayers must declare the landlord’s name, address, PAN, and exact relationship - be it parents, spouse, siblings, or any other relative.

This measure aims to curb the misuse of HRA through informal family arrangements or fake receipts, ensuring transparency in rental transactions within families.

Mandatory Relationship Disclosure

Under the new rules:

• The relationship with the landlord must be specified in a prescribed form.
• Payments must be backed by formal rental agreements.
• Bank transfers are recommended over cash payments for traceability.
• Landlords, including family members, must report this rental income in their own tax filings.

The focus of the tax authorities has shifted from merely accepting receipts to verifying whether rents align with reasonable market rates.

Penalties for Non-Compliance

Failure to disclose relationships or submitting false HRA claims can trigger severe consequences:

• Penalty of up to 200% of the tax evaded.
• Interest charges on unpaid taxes.
• Notices from the Income Tax Department for discrepancies between claimed rent and reported rental income.

This underscores the importance of honesty and complete documentation for employees seeking HRA benefits while paying rent to family members.

How Salaried Employees Should Prepare

With these new rules, employees should:

• Review all HRA claims carefully.
• Maintain formal rental agreements and bank transaction proofs.
• Ensure landlords report the received rent accurately.
• Avoid casual arrangements or cash payments without proper documentation.

This is a timely reminder for all salaried taxpayers to get their HRA records in order before April 2026, especially when renting from family members, to avoid heavy penalties and scrutiny.