The Government of India has notified the Income Tax Rules, 2026, which will come into effect from April 1, 2026, aligning with the new Income-tax Act, 2025 for the financial year 2026‑27. The updated rules provide clarity on key provisions and compliance requirements, particularly for salaried taxpayers, who must follow them when filing returns by July 31.

A major update affects the House Rent Allowance (HRA) exemption for employees. The list of cities eligible for higher HRA exemption has been expanded to include eight urban centres: Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru. Previously, only select metropolitan cities qualified for the higher limit. This change recognizes that rental costs in several fast-growing urban areas have risen significantly, providing a broader tax benefit for salaried individuals.

Under the new rules, HRA exemption will be calculated as the least of the following: actual HRA received, rent paid minus one‑tenth of salary, or 50% of salary in the listed cities (40% in other cities). The expanded list allows more employees to potentially claim a larger exemption, reducing taxable income and easing financial burdens in high-rent areas.

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Another notable change is the introduction of Form No. 124, which requires taxpayers claiming HRA to disclose their relationship with the landlord. This form replaces the earlier practice where only rent receipts and the landlord’s PAN were submitted. Employees paying rent to relatives, such as parents, must now declare the relationship and ensure that the corresponding rental income is reported in the landlord’s tax return.

The disclosure requirement aims to curb misuse of HRA claims and streamline tax authorities’ ability to match rent payments with reported income. While paying rent to relatives remains permissible under the law, the new rules increase transparency and strengthen compliance measures.

Tax experts note that these updates may require employees and employers to adjust payroll and documentation processes to ensure adherence. With the April 1 deadline approaching, taxpayers are advised to familiarize themselves with the new rules to avoid errors or penalties during the 2026‑27 filing season.

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