New HRA Rules 2026: What Every Salaried Employee Must Know About Form 124

From April 1, 2026, the rules for claiming House Rent Allowance (HRA) have changed significantly for salaried employees across India. The old Form 12BB has been replaced by the new Form 124 under the Income Tax Rules 2026. Employees paying annual rent above ₹1 lakh must now disclose their relationship with the landlord and provide supporting documents. This article covers everything you need to know – from what Form 124 requires, to which cities qualify for higher exemptions, to the penalties for non-compliance.

Key Highlights at a Glance

What Is Form 124 and Why Does It Replace Form 12BB?

Form 124 is the new declaration form introduced under the Income Tax Rules 2026 (Rule 205) and governed by Section 392(5)(b) of the Income Tax Act 2025. It replaces the old Form 12BB, which employees used to submit their HRA, LTA, and investment declarations to their employers.

The key difference is the level of detail required. While Form 12BB only asked for basic rent details and the landlord’s PAN, Form 124 goes further by requiring employees to disclose the nature of their relationship with the landlord. This is especially important when rent is paid to a parent, spouse, or sibling.

The government’s objective is straightforward: prevent fake HRA claims, particularly in cases where rent is paid to close relatives without any real tenancy arrangement.

Who Needs to Submit Form 124?

Any salaried employee who wants their employer to account for HRA (or other tax benefits like LTA and housing loan interest) while calculating TDS must submit Form 124. It is not strictly mandatory – but without it, the employer cannot factor in your claims and will deduct higher TDS from your salary.

You must submit the form once per financial year, as early as possible. If you change jobs during the year, you can submit Form 124 to the new employer along with income and TDS details from the previous employer.

What Does Form 124 Require for HRA Claims?

Mandatory Disclosures

When claiming HRA exemption under Form 124, you must provide:

• Landlord’s full name and address
• Landlord’s PAN (mandatory if annual rent exceeds ₹1 lakh)
• Your relationship with the landlord (e.g., parent, unrelated person, spouse)
• Monthly rent amount and total annual rent paid

Supporting Documents Required

• Valid rent agreement signed by both parties
• Monthly rent receipts
• Bank transfer proof (NEFT, IMPS, UPI, or cheque)
• Landlord’s PAN card copy (if annual rent exceeds ₹1 lakh)

Important: Cash payments are strongly discouraged. Without a banking trail, your claim may face scrutiny or rejection during tax assessments.

Cities Eligible for 50% HRA Exemption

Under the Income Tax Rules 2026, eight metro cities now qualify for a 50% HRA exemption on basic salary. Four new cities – Bengaluru, Hyderabad, Pune, and Ahmedabad have been added to the existing list. Employees in all other cities remain eligible for a 40% exemption.

Note: The HRA exemption is calculated as the lowest of: (a) actual HRA received, (b) 50%/40% of basic salary, or (c) actual rent paid minus 10% of basic salary. This applies under the old tax regime only.

Penalties for Non-Compliance

The government has introduced strict penalties to deter false HRA claims. Under Section 270A of the Income Tax Act, employees found misreporting or under-reporting income through fraudulent HRA claims can face a penalty of up to 200% of the tax evaded.

Additionally, landlords who receive rental income must declare it in their own income tax return. Failure to report rental income can also attract penalties under the new compliance framework.

Practical Tips for Employees

1. Submit Form 124 to your employer at the start of the financial year to avoid excess TDS deductions.
2. Always pay rent via bank transfer, UPI, or cheque.
3. If paying rent to parents, ensure a proper rental agreement is in place and your parents declare the income in their tax return.
4. If you are in Bengaluru, Hyderabad, Pune, or Ahmedabad, update your Form 124 to claim the new 50% exemption.
5. Keep all documents – rent receipts, bank statements, and the rental agreement – for at least 6 years in case of an audit.

Conclusion

The shift from Form 12BB to Form 124 marks a significant step toward greater tax transparency in India. From April 1, 2026, salaried employees must disclose their landlord relationship, ensure rent is paid through banking channels, and maintain proper documentation to claim HRA benefits. The expansion of the 50% exemption city list to include Bengaluru, Hyderabad, Pune, and Ahmedabad is a welcome relief for employees in these metros. Stay compliant, file accurately, and consult a tax professional if your rental arrangement involves close family members or unusual circumstances.

You can call or whatsapp at +91 9769647582 for any ITR filing or HRA queries or requirement.

Frequently Asked Questions (FAQs)

Is Form 124 mandatory for all salaried employees?

No. Form 124 is only mandatory if you want your employer to consider your HRA and other deduction claims while computing TDS. Without it, your employer will deduct TDS at the full rate.

Can I still claim HRA if I pay rent to my parents?

Yes, you can. But from April 1, 2026, you must disclose the relationship in Form 124, ensure rent is paid through banking channels, and your parents must declare the rental income in their tax return. A genuine rental agreement is essential.

What if my landlord refuses to give their PAN?

If your annual rent exceeds ₹1 lakh and the landlord does not provide their PAN, you may not be able to claim the full HRA exemption. Aadhaar is not a mandatory substitute under the current rules.

Does Form 124 need to be uploaded on the Income Tax portal?

No. Form 124 is submitted directly to your employer, either physically or electronically. You do not need to upload it separately on the Income Tax portal.

What happens if I change jobs mid-year?

You can submit a fresh Form 124 to your new employer. You will also need to provide income and TDS details from your previous employer so that the new employer can calculate your remaining TDS liability accurately.