HRA Exemption Rules 2026: Documents Required & PAN of Landlord Requirement

If you pay rent and receive HRA as part of your salary, two things are changing from 01 April 2026 that directly affect your tax exemption: four new cities now qualify for the higher 50% HRA rate, and a new Form 124 requires you to disclose your relationship with the landlord when submitting claims.

This guide covers the complete HRA exemption framework under Rule 279, every document you need, when the landlord’s PAN is mandatory, how to handle situations where the landlord has no PAN, and worked examples comparing the old and new metro city rules.

What Is HRA Exemption Under Rule 279 and Why Does It Matter?

HRA (House Rent Allowance) exemption under Rule 279 of the Income Tax Rules, 2026 allows salaried employees who receive HRA as part of their salary to claim a tax-free portion of that HRA, provided they actually pay rent for residential accommodation. It replaces Rule 2A of the Income Tax Rules, 1962, under the equivalent of Section 10(13A) of the Income Tax Act, 2025.

The exemption is computed as the lowest of three amounts: actual HRA received, rent paid minus 10% of salary, or 50% of salary (metro cities) / 40% (other cities). Getting this calculation right - and maintaining proper documentation - can save you tens of thousands of rupees in tax annually.

For employees managing income tax return filing, incorrect HRA claims are one of the most common reasons for assessment notices. Proper documentation, especially the landlord’s PAN, is your primary defence against disallowance.

Key Terms You Should Know

• Rule 279 (IT Rules, 2026): The rule governing HRA exemption computation. Replaces Rule 2A. Covers the “least of three” formula, metro city classification, and salary definition.
• Form 124 (Employee Claims Statement): Replaces Form 12BB. New requirement: landlord relationship must be disclosed when claiming HRA. Submitted to employer/DDO.
• Landlord PAN Threshold - Rs 1,00,000: If annual rent exceeds Rs 1 lakh, the employee must provide the landlord’s PAN to the employer. If landlord has no PAN, a written declaration is required.
• Metro Cities (50% HRA): 8 cities from FY 2026-27: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad. Previously only 4 cities qualified.
• Salary (for HRA purposes): Basic pay + Dearness Allowance (if part of retirement benefits) + commission as a percentage of turnover. Does NOT include other allowances or perquisites.
• Form 10BA / Self-Declaration: If landlord does not have a PAN, the tenant must obtain a written declaration from the landlord with name, address, and statement of PAN non-availability.

Who Needs to Know the HRA Exemption Rules?

Every salaried employee who receives HRA and pays rent is affected:

• Employees in newly added metro cities (Bengaluru, Hyderabad, Pune, Ahmedabad): You now qualify for 50% salary HRA exemption instead of 40%. This is a 10% increase in the exemption ceiling, translating to significant tax savings.
• Employees paying rent above Rs 1 lakh/year: You must provide landlord PAN in Form 124. Without it, your employer may deny the HRA exemption during payroll processing.
• Employees paying rent to parents: Allowed under tax law, but the rental arrangement must be genuine. Rent must be paid through banking channels, and parents must declare rental income in their ITR.
• Employees on the new tax regime: HRA exemption is NOT available. Your entire HRA is fully taxable. Consider whether the old regime with HRA + other deductions gives you lower tax.
• HR and payroll teams: Must collect Form 124 (not Form 12BB) from employees. Must verify landlord PAN for rents >Rs 1 lakh. Must now capture landlord relationship data.

Companies using payroll processing services should ensure their provider accepts the new Form 124 format and captures the landlord relationship field from April 2026.

Legal Framework: Old Rule 2A vs New Rule 279 for HRA

Note: The biggest change is the metro city expansion from 4 to 8 cities. The landlord PAN threshold, calculation formula, and regime restriction remain unchanged. The NEW requirement is the landlord relationship disclosure in Form 124.

How to Claim HRA Exemption: Step-by-Step Process

1. Verify you receive HRA in your salary. Check your salary slip or CTC breakup. HRA must be a separate component. If your employer does not provide HRA, you may claim deduction under Section 80GG equivalent (capped at Rs 60,000/year) instead.

2. Confirm you are on the old tax regime. HRA exemption is NOT available under the new regime. If you haven’t opted for the old regime via Form 122, your employer will compute TDS under the new regime and your entire HRA will be taxable. For a complete overview of regime-specific rules, see our Draft Income Tax Rules 2026 guide.

3. Determine your metro city status. If you work in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, or Ahmedabad, you qualify for 50% of salary as the HRA ceiling. All other cities: 40%.

4. Compute the “least of three” formula. Exempt HRA = LOWEST of: (a) Actual HRA received, (b) Rent paid minus 10% of salary, (c) 50% of salary (metro) or 40% (non-metro). The lowest amount is your tax-exempt HRA. The balance is taxable.

5. Collect landlord PAN if rent exceeds Rs 1 lakh/year. If your annual rent is Rs 1,00,001 or more (approx Rs 8,334/month), you MUST obtain and submit the landlord’s PAN. If the landlord has no PAN, obtain a written declaration with their name, address, and statement of PAN non-availability.

6. Submit Form 124 to your employer. Form 124 replaces Form 12BB. Fill in: HRA claim amount, landlord name, landlord address, landlord PAN (or declaration), and - NEW - your relationship with the landlord. Submit along with rent receipts and rental agreement to your DDO/HR department.

7. Verify in Form 130 and your ITR. Cross-check the HRA exemption amount in Form 130 (replacing Form 16) issued by your employer. Report correctly in your ITR-1 or ITR-2 under “Allowances exempt u/s 10.”

Documents Required for HRA Exemption Claim

• Rent receipts - monthly receipts signed by the landlord with landlord name, tenant name, rent amount, period, and address. Required if rent exceeds Rs 3,000/month.
• Rental agreement - valid lease/rental agreement between tenant and landlord. Not legally mandatory under IT Act but strongly recommended for proof of genuine tenancy.
• Landlord PAN - mandatory if annual rent exceeds Rs 1,00,000. Photocopy of landlord’s PAN card to be attached with Form 124.
• Landlord PAN self-declaration - if landlord does not have PAN, obtain a written declaration on plain paper stating landlord’s name, address, and confirmation that they do not possess a PAN.
• Form 124 (Employee Claims Statement) - replaces Form 12BB. Filled by employee with HRA claim details, landlord information, and NEW landlord relationship disclosure.
• Bank statements / UPI / cheque records - proof of rent payment through banking channels. Cash payments above Rs 10,000 are not advisable and may be questioned.
• Salary slips - showing HRA component as part of monthly salary structure.
• Form 122 (Regime Selection) - confirming you have opted for the old tax regime (new regime does not allow HRA exemption).
• Parent’s ITR (if paying rent to parents) - evidence that rental income is declared by the parent-landlord.
• Employer certificate / Form 130 - TDS certificate showing HRA exemption applied in salary TDS computation.

HRA Exemption Calculation: Old 4 Cities vs New 8 Cities

Example: Employee in Bengaluru with Basic + DA of Rs 80,000/month, HRA of Rs 40,000/month, rent of Rs 35,000/month.

Note: In this example, the “rent minus 10%” is the limiting factor, so the metro expansion doesn’t change the exempt amount. But when HRA received is the lowest - common when employers provide lower HRA - or when rent is very high relative to salary, the 50% vs 40% ceiling becomes the binding constraint, and the metro expansion delivers real tax savings of Rs 12,000-36,000/year at various salary levels.

Common Mistakes to Avoid When Claiming HRA

Mistake 1: Claiming HRA under the new tax regime. HRA exemption is available ONLY under the old regime. If you are on the new regime (the default from FY 2026-27), your entire HRA is taxable. You must opt for the old regime via Form 122 to claim HRA. Employers handling TDS return filing must verify the employee’s regime choice before applying HRA exemption.

Mistake 2: Not providing landlord PAN when rent exceeds Rs 1 lakh/year. If annual rent crosses Rs 1,00,000 and you don’t submit the landlord’s PAN (or a valid no-PAN declaration), your employer will disallow the HRA exemption in TDS. You may still claim it in ITR, but without documentation, the assessing officer can disallow it during scrutiny.

Mistake 3: Not disclosing landlord relationship in Form 124. The new Form 124 requires you to state your relationship with the landlord. If you are paying rent to parents, a spouse, or other relatives, this MUST be disclosed. Non-disclosure is a compliance failure that can trigger a notice.

Mistake 4: Paying rent in cash without documentation. Cash rent payments without supporting bank statements, UPI records, or cheque copies are difficult to prove. The IT Department can disallow HRA claims where payment cannot be verified through banking channels. Always pay rent digitally.

Mistake 5: Claiming both HRA and home loan interest for the same property. You cannot claim HRA exemption and home loan interest deduction (Section 24(b) equivalent) for the SAME property. This is allowed only if you own a house in one city but pay rent in another city due to employment. The two properties must be different.

Penalties for Incorrect or Fraudulent HRA Claims

Incorrect HRA claims carry serious consequences:

Claiming HRA based on inflated or fictitious rent amounts is treated as misreporting of income. This attracts a penalty of 200% of the tax payable on the misreported amount under Section 270A equivalent provisions of the Income Tax Act, 2025.

Under-reporting of income - such as failing to add the taxable portion of HRA to salary income - attracts a penalty of 50% of tax payable on the unreported amount.

Using a fake landlord PAN is a criminal offence. The IT Department cross-verifies PAN data. If the PAN does not match the landlord’s name or does not exist, the claim is disallowed and the employee may face prosecution proceedings under relevant sections.

Employers who process HRA exemptions without collecting Form 124, landlord PAN, or rent receipts may also face scrutiny during TDS assessment proceedings for enabling incorrect claims.

How HRA Connects with Rent-Free Accommodation and Other Provisions

HRA exemption (Rule 279) and rent-free accommodation perquisite (Rule 15(2)) are mutually exclusive. If your employer provides rent-free accommodation, you cannot simultaneously claim HRA exemption. However, if you pay concessional rent to the employer that exceeds the Rule 15(2) perquisite value, no accommodation perquisite arises - but you still cannot claim HRA. For strategic comparison between HRA and RFA, tax planning services can model both scenarios to determine the lower tax outcome.

HRA interacts with the old-vs-new regime decision. Under the old regime, HRA exemption + Section 80C (now 123) + Section 80D + standard deduction (Rs 50,000) can significantly reduce taxable income. Under the new regime, none of these exemptions apply, but slab rates are lower and the standard deduction is Rs 75,000. For employees in the 8 metro cities paying high rent, the old regime with the enhanced 50% HRA may now produce lower tax than the new regime.

The landlord PAN requirement creates a compliance chain: the employee submits PAN to the employer via Form 124, the employer verifies and applies the HRA exemption in TDS, and the IT Department cross-checks whether the landlord has declared the rental income in their own return. This traceability mechanism is why fake PAN or fake rent arrangements are increasingly caught during automated processing.

What Do the New Rules Cover? HRA Claim Scenarios Compared

Key Takeaways

HRA exemption under Rule 279 of the Income Tax Rules, 2026 expands the 50% salary metro city list from 4 cities to 8 - adding Bengaluru, Hyderabad, Pune, and Ahmedabad alongside Mumbai, Delhi, Kolkata, and Chennai.

Landlord PAN is mandatory when annual rent exceeds Rs 1,00,000. If the landlord does not have PAN, a written self-declaration with name and address is required. Fake PAN submissions can lead to prosecution.

The new Form 124 (replacing Form 12BB) introduces a mandatory landlord relationship disclosure field - employees paying rent to parents or relatives must declare this relationship or face compliance issues.

HRA exemption is available ONLY under the old tax regime. Employees on the new regime (the default from FY 2026-27) must opt out via Form 122 to claim HRA. The exemption is the lowest of: actual HRA received, rent minus 10% of salary, or 50%/40% of salary.

Always pay rent through banking channels (UPI, NEFT, cheque) and maintain rent receipts, rental agreement, and landlord PAN documentation. Cash payments above Rs 10,000 are difficult to prove and may result in disallowance.

Need Help with Income Tax Compliance?

The HRA exemption changes under Rule 279 - especially the metro city expansion and Form 124 landlord relationship disclosure - require employers and employees to update documentation processes before FY 2026-27.

Explore our income tax return filing services for end-to-end compliance support during this transition.

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