Claiming HRA On Rent Paid To Parents? Draft Rules May Seek Relationship Disclosure

Employees who live in a house owned by their parents or other relatives and claim House Rent Allowance (HRA) may soon have to spell out that relationship in their tax paperwork, as part of changes proposed in the draft income tax rules.

The proposal centres on cases where rent paid in a year exceeds Rs 1 lakh, according to a recent NDTV report. At present, salaried individuals claiming HRA must submit rent receipts and provide the landlord’s PAN if the annual rent crosses that mark. What is not currently required is an explicit declaration of whether the landlord is a close family member. The draft rules aim to introduce that additional layer of disclosure.

No suggestion that renting from parents or relatives will be barred. The tax law has long permitted such arrangements, provided they are genuine. Many families use this route where adult children stay in a parental home but pay rent formally, allowing the employee to claim HRA while the parent declares the rental income.

A Push For Clearer Reporting

The government’s concern appears to be around misuse rather than the arrangement itself. Tax authorities have, over time, encountered cases where HRA was claimed on the basis of paperwork that did not reflect actual financial movement. In some situations, rent receipts were issued, but payments were not traceable. In others, the supposed landlord did not report rental income on their return.

By asking employees to identify the relationship with the landlord, the tax department would have clearer visibility in related-party transactions. With income tax filings increasingly examined through automated systems that match data across returns, such disclosures can help flag inconsistencies more efficiently.

The proposed rule forms part of the wider revamp of tax procedures under the new income tax framework that the government is working to implement.

What It Means On The Ground

For taxpayers who genuinely transfer rent to their parents or relatives each month, the impact may be limited to filling in an extra column or declaration. But the emphasis on documentation is likely to increase.

A written rent agreement, regular bank transfers, and proper reporting of rental income by the family member receiving the rent will be important. If annual rent exceeds Rs 1 lakh, providing the landlord’s PAN will continue to be mandatory. Any gap between what the tenant claims and what the landlord reports could draw scrutiny.

Tax professionals say families using this structure should ensure the arrangement can stand up to examination. Informal understandings, cash payments without records, or failure to declare rental income may create complications if the rules are notified in their current form.

The draft is open for feedback before it is finalised. Still, the direction is clear: exemptions claimed under salary income, including HRA, are moving towards tighter disclosure norms. For employees relying on rent paid to relatives to optimise their tax outgo, this may be a good time to review paperwork and ensure that everything is properly aligned with the law.