The HRA disclosure rule change that employers and HR teams across India have been tracking since late 2025 is now official. Specifically, on 20 March 2026, the Central Board of Direct Taxes notified the Income-tax Rules, 2026 under the new Income Tax Act, 2025. Consequently, these rules take effect from 1 April 2026 and bring a specific new requirement: any salaried employee claiming House Rent Allowance must now disclose their relationship with the landlord in the prescribed declaration form.
For most employees paying rent to an unrelated landlord, this is therefore a procedural addition rather than a substantive change. For employees paying rent to a parent, spouse, sibling, or any other relative, however, this HRA disclosure rule change creates a data trail that the Income Tax Department can use for scrutiny. The implication for HR teams is equally clear: HR teams need to update Form 12BB, through which employees declare their HRA claims, immediately to collect this new information before payroll processing begins for April 2026.
This guide covers, therefore, exactly what changed, what employees must now disclose, what HR teams must collect, and which cities now qualify for the higher 50% HRA exemption under the same set of rules.
HR team needs to update employee declaration forms before April payroll? Futurex handles payroll compliance and HRA structuring for companies across India. First compliance review is free.
What the HRA Disclosure Rule Change Actually Says
The HRA disclosure rule change sits in Rule 205 of the Income-tax Rules, 2026, read with the revised Form 124, which replaces the existing Form 12BB framework. Under this rule, consequently, an employee claiming HRA must now provide the following details to their employer at the time of submitting their investment and rent declaration.
| Detail Required | Applicable When |
|---|---|
| Name of landlord | All HRA claims |
| Address of rented property | All HRA claims |
| PAN of landlord | Where annual rent exceeds Rs. 1 lakh |
| Nature of relationship with landlord | All HRA claims. New from April 2026. |
Notably, the first three requirements are not entirely new. Landlord name, address, and PAN above the Rs. 1 lakh annual rent threshold were already part of the Form 12BB declaration process. What is new in the HRA disclosure rule change is the fourth point: the mandatory disclosure of whether the landlord is a relative, and if so, what the relationship is. In other words, this specific data point creates a structured, verifiable record that the tax department can cross-reference at scale.
Why the Government Introduced This HRA Disclosure Change
Indeed, the Income Tax Department has long been aware that a significant portion of HRA claims involve rent paid to relatives, particularly parents. In many such cases, the rent arrangement is genuinely real and properly documented. For example, a salaried employee living in a parent’s house and paying actual rent to the parent, with the parent reporting that rental income in their own tax return, is a legitimate arrangement that the law permits.
However, a substantial number of such arrangements exist only on paper and have no financial substance. In other cases, employees declare rent to a parent or spouse with no actual payment taking place, the relative receives no rental income in their return, and the HRA exemption reduces the employee’s taxable income without any corresponding tax impact on the receiving end. The HRA disclosure rule change targets this specific pattern by creating a disclosure that enables data matching across both returns.
As the official notification specifically states, the objective is bringing greater transparency to tax reporting rather than introducing new taxes. Consequently, compliant taxpayers with genuine rental arrangements face only a procedural addition, not a change in their tax position.
⚠ If you pay rent to a relative: The HRA exemption remains available for genuine rent paid to relatives under the Income Tax Act, 2025. What changes, therefore, is the disclosure requirement. Specifically, employees must now declare the relationship to their employer via the updated form. Additionally, the employee should document the rent agreement, route the payment through a bank transfer, and the relative must report the rental income in their own tax return. Arrangements that lack these elements will face elevated scrutiny from April 2026 onwards.
The Other HRA Change in the 2026 Rules: More Cities at 50%
Beyond the disclosure requirement, the Income-tax Rules, 2026 also bring a significant positive change for employees in several cities. Previously, only four metros qualified for the higher 50% HRA exemption of 50% of salary: Mumbai, Delhi, Kolkata, and Chennai. Under the new rules effective from April 2026, however, four additional cities join this list.
| HRA Exemption Rate | Cities (from April 1, 2026) |
|---|---|
| 50% of salary | Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad |
| 40% of salary | All other cities and locations |
For employees in Bengaluru, Hyderabad, Pune, and Ahmedabad, therefore, this expansion directly increases the maximum HRA exemption they can claim. In practical terms, an employee in Bengaluru earning Rs. 80,000 per month basic salary and paying Rs. 45,000 in rent can now claim an exemption of Rs. 40,000 per month under the 50% rule, compared to Rs. 32,000 under the previous 40% rule. That is a difference of Rs. 8,000 per month in taxable income, or Rs. 96,000 per year. HR teams in these four cities should update payroll to reflect the higher exemption limit from the April 2026 salary processing cycle.
What HR Teams Must Do Before April 2026 Payroll
The HRA disclosure rule change creates a direct action requirement for HR and payroll teams. Specifically, HR teams must collect the updated declaration form from employees before April payroll runs, because TDS calculations for FY 2026-27 start from April itself.
Five Steps HR Teams Must Complete Before April 2026 Payroll
Step 1: Update the employee HRA declaration form. Specifically, the existing Form 12BB or its internal equivalent used by your organisation needs to include the new field: nature of relationship with landlord. This can be a simple dropdown or text field asking whether the landlord is a relative and if so, the relationship type.
Step 2: Collect fresh declarations from all HRA claimants. Importantly, do not rely on declarations from the previous financial year. Every employee claiming HRA for FY 2026-27 must submit a fresh declaration that includes the new relationship disclosure field.
Step 3: For employees in Bengaluru, Hyderabad, Pune, and Ahmedabad, update the exemption rate to 50%. Consequently, this is a payroll configuration change that must go in before April salary processing. Employees in these cities who were previously getting the 40% exemption are now entitled to 50%, and the difference should reflect in their April 2026 TDS calculation.
Step 4: Retain the collected declarations as part of payroll records. Under the Income Tax Act, 2025, employer documentation obligations continue as before. HR must retain the relationship disclosure form alongside rent receipts, rent agreements, and landlord PAN copies as part of the employee’s HRA claim documentation.
Step 5: Communicate the change to employees clearly. In practice, many employees are unaware that the relationship disclosure is now mandatory. A brief HR communication explaining what employees must submit and why prevents incomplete submissions and follow-up rounds.
⚠ Employer’s TDS liability: If an employer processes HRA exemption for an employee without collecting the mandatory relationship disclosure and the employee’s claim later fails scrutiny, the employer faces TDS shortfall liability. The employer is responsible for deducting TDS based on accurate declarations and that responsibility does not shift. An incomplete declaration form is not a defence against a TDS demand. Consequently, collecting the updated form from every HRA claimant before April payroll is not optional.
HRA Disclosure Rule Change: What Changes and What Stays the Same
Given the significant attention this rule has received, it is worth being clear it is worth being clear about what the HRA disclosure rule change does and does not affect.
| What Changes from April 2026 | What Stays the Same |
|---|---|
| Landlord relationship must be disclosed in declaration form | HRA exemption remains available for rent paid to relatives |
| 8 cities now qualify for 50% exemption (up from 4) | 40% exemption continues for all other cities |
| Tax department can now data-match related-party HRA claims | PAN requirement for landlord above Rs. 1 lakh rent threshold unchanged |
| Updated Form 124 replaces Form 12BB for declarations | HRA exemption calculation method remains the same |
How Futurex Supports Payroll Teams Through This HRA Disclosure Change
For companies where payroll runs in-house, consequently, the HRA disclosure rule change adds a specific administrative task to the April 2026 payroll cycle: collecting updated declarations, verifying they are complete, updating exemption rates for newly eligible cities, and adjusting TDS calculations accordingly. For teams already managing PF, ESI, professional tax and quarterly TDS filings alongside monthly payroll,, and quarterly TDS filings alongside monthly payroll, this additional step at the start of the financial year often falls through the cracks.
Futurex manages payroll processing and compliance for companies in Noida, Delhi NCR, Bengaluru, and across India. As part of the payroll management service, the team tracks regulatory changes like this one, updates declaration forms, collects employee submissions, and ensures TDS calculations reflect the correct exemptions from the first month of the financial year. For companies that also need broader labour law compliance alongside payroll, the labour compliance service covers both functions in a coordinated process.
Frequently Asked Questions About the HRA Disclosure Rule Change 2026
What is the HRA disclosure rule change effective from April 2026?
The HRA disclosure rule change under the Income-tax Rules, 2026, notified by CBDT on 20 March 2026, makes it mandatory for salaried employees claiming HRA to disclose their relationship with the landlord in the prescribed declaration form. Specifically, this applies to all HRA claims from 1 April 2026 and is part of the broader rollout of the Income Tax Act, 2025.
Can you still claim HRA if you pay rent to a relative after April 2026?
Yes, it does. The Income Tax Act, 2025 still permits HRA exemption for rent paid to relatives, including parents. What changes is that employees must now disclose the relationship in the declaration form they submit to their employer. For the claim to hold up under scrutiny, the employee should also support the rental arrangement with a proper rent agreement, bank transfer payment records, and the relative must declare the rental income in their own tax return.
Which cities now qualify for 50% HRA exemption from April 2026?
From 1 April 2026, eight cities qualify for the higher HRA exemption of 50% of basic salary: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad. Previously, only the first four cities were in this category. From April 2026, employees in Bengaluru, Hyderabad, Pune, and Ahmedabad qualify for the higher 50% rate for FY 2026-27 onwards.
What does the employer need to collect from employees under the new HRA rule?
Employers must collect the landlord name, address, PAN if annual rent exceeds Rs. 1 lakh, and now the nature of relationship with the landlord if any relationship exists. For this reason, employers must capture this in the updated Form 124, which replaces Form 12BB under the Income-tax Rules, 2026. HR teams should update their internal declaration templates and collect fresh submissions from all HRA claimants before processing April 2026 payroll.
What happens if an employee does not disclose the landlord relationship?
If an employee omits the relationship disclosure and the tax department later identifies a related-party arrangement through data matching, the HRA exemption can be disallowed for that year. The employee then faces a tax demand plus interest on the under-deducted TDS. Additionally, the employer may face a TDS shortfall notice for not collecting adequate tax based on an incomplete declaration. Therefore, submitting a complete and accurate declaration from the outset is in the interest of both parties.
Is the HRA disclosure rule change the same as the HRA exemption changing?
No, it has not. The HRA exemption calculation method itself has not changed. The exemption is still the lowest of three amounts: actual HRA received, rent paid minus 10% of salary, and 50% or 40% of salary depending on the city. What has changed, however, is the disclosure and documentation requirement for claiming that exemption, and the city list for the 50% bracket. The HRA disclosure rule change is a compliance and transparency measure, not a change to the exemption amount itself.
Need Help Updating HRA Declarations and Payroll for April 2026?
The HRA disclosure rule change takes effect from 1 April 2026. Updated declarations, revised TDS calculations for newly eligible cities, and correct documentation must all be in place before April payroll runs. Futurex Management Solutions manages payroll compliance for companies in Noida, Delhi NCR, and across India. First compliance review is free. No commitment required.