House Rent Allowance (HRA) is one of the most important tax-saving components for salaried individuals in India. However, the government has introduced major compliance changes under Draft Income Tax Rules 2026, especially with the introduction of Form 124.

This article explains:

• Latest HRA rules (2026)

• What is Form 124

• Key changes vs old system (Form 12BB)

• Compliance tips to avoid penalties

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🔍 What is HRA (House Rent Allowance)?

HRA is an allowance given by employers to employees to meet rental expenses. A portion of HRA is tax-exempt under Section 10(13A) of the Income Tax Act.

✅ HRA exemption is calculated as the lowest of:

1. Actual HRA received

2. Rent paid minus 10% of salary

3. 50% (metro) or 40% (non-metro) of the salary

👉 Important: HRA benefit is available only under the Old Tax Regime.

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🚨 New HRA Rules 2026 (Major Changes)

The government has tightened HRA compliance to prevent misuse and fake rent arrangements.

1. Introduction of Form 124 (Biggest Change)

• Form 124 will replace Form 12BB

• Mandatory for claiming HRA through the employer

• Requires detailed landlord disclosure

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2. Mandatory Disclosure of Relationship with Landlord

Now, employees must declare if the landlord is:

• Parent

• Spouse

• Relative

• Any related party

👉 Earlier, this was not required.

📌 Why this matters:

• Prevents fake rent payments within the family

• Enables AI-based tax scrutiny

• Cross-checks landlord’s ITR & property ownership

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3. Strict Verification System

The Income Tax Department will now verify:

• Rental income declared by the landlord

• Ownership of property

• Bank payment trail

• Relationship disclosure

👉 This shifts HRA from self-declaration → data-driven verification

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4. Higher Risk of Penalty

Incorrect or fake HRA claims can lead to:

• Disallowance of exemption

• Heavy penalties (up to 200% of tax)

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5. Expansion of Metro Cities (Benefit)

Proposed update:

• Cities like Bengaluru, Pune, Hyderabad, and Ahmedabad may qualify for 50% HRA limit (earlier only 4 metros)

👉 This increases tax benefits for employees in high-rent cities.

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📄 What is Form 124?

✅ Definition:

Form 124 is a new income tax declaration form (proposed in 2026) that employees must submit to claim HRA and other deductions.

It replaces Form 12BB, which was earlier used for:

• HRA claims

• LTA

• Home loan interest

• Deductions

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🧾 Details Required in Form 124

You must provide:

• Landlord name

• Address

• PAN / Aadhaar

• Rent amount

• Relationship with landlord (NEW mandatory field)

• Proof of rent payment

👉 This additional disclosure is the key change.

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🔄 Form 12BB vs Form 124 (Key Differences)

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⚠️ Important Compliance Tips for HRA (2026)

To safely claim HRA:

✔️ Create a valid rent agreement
✔️ Pay rent via bank transfer (no cash)
✔️ Collect rent receipts
✔️ Ensure landlord files ITR with rental income
✔️ Declare correct relationship in Form 124

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❌ Common Mistakes to Avoid

• Showing rent paid to parents without an actual transfer

• Fake rent receipts

• Landlord not declaring rental income

• Cash payments without proof

👉 These will now be easily detected.

• landlord relationship HRA rule

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❓ FAQs on HRA New Rules & Form 124

1. Is Form 124 mandatory?

Yes, under the proposed rules, it will be mandatory to claim HRA through the employer.

2. Can I still pay rent to parents?

Yes, but:

• Must disclose relationship

• Must actually transfer rent

• The Parent must show rental income

3. What happens if I give the wrong details?

You may face:

• Disallowance of HRA

• Penalty up to 200% of tax

4. Is HRA allowed in the new tax regime?

No, the HRA exemption is only available under the old regime.

5. What replaces Form 12BB?

Form 124 (proposed under Income Tax Rules 2026).

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🏁 Conclusion

The introduction of Form 124 and new HRA rules in 2026 marks a major shift towards transparent and data-driven tax compliance.

👉 Earlier: Easy declaration
👉 Now: Strict verification + higher scrutiny

For genuine taxpayers, nothing to worry—but improper or fake HRA claims will no longer go unnoticed.