Rent Paid to Family Members? New Tax Rules May Require Proof and Relationship Disclosure

If you are a salaried employee and claim House Rent Allowance (HRA) under the old tax system, some new rules may apply soon. The government is planning to introduce stricter reporting requirements from April 1, 2026.

Under the proposed income tax rules, salaried employees will need to clearly disclose their relationship with the landlord when claiming HRA. Especially for a salaried employee who pays rent to family members such as your parents, spouse or other relatives.

These changes are part of the new Income Tax Act, 2025, which will replace the old tax law that has been in place since 1961. The main objective of introducing stricter rules is to reduce misuse of HRA claims, such as fake rent receipts or informal arrangements made only to save tax.

Earlier, most employees only had to submit rent receipts and the landlord’s PAN number to claim House Rent Allowance (HRA). The new proposed rules make this a bit stricter. Now, if your total rent is more than Rs. 1 lakh in a year, you will not only need to provide the landlord’s name, address, and PAN, but also clearly mention your relationship with the landlord in the required forms.

The government has not made it illegal to pay rent to a family member. Such arrangements are still allowed. However, now tax authorities want to see proper proof that the rent payment is genuine. This proof should include a written rent agreement, and the rent should be paid through bank transfer instead of cash. Apart from this, the family member who receives the rent must report it as rental income on their income tax return.

Penalties for False or Incomplete Disclosure

If a salaried employee does not clearly disclose their relationship with the landlord or makes a false claim, it can lead to serious consequences. If the tax department finds that the rent claim is wrong or cannot be supported with proof, it may consider it a misreporting of income.

Under the new Income Tax Act, the penalty can be as high as 200% of the tax that was avoided incorrectly, along with extra interest and possible tax notices. A taxpayer may also receive a notice if there is any mismatch between the rent they claimed and the income shown by the landlord.