In a major shift that tightens the loopholes around House Rent Allowance (HRA) claims, the Income Tax Department’s latest compliance mandates are set to put an end to one of the most commonly misused tax-saving tactics: claiming rent paid to parents while continuing to live in one’s own home.
The Old Trick: Rent Agreement with Parents
Until recently, it was a popular practice among salaried taxpayers to claim HRA exemption by creating a formal rent agreement with their parents—especially when living in a property owned by the family. The strategy was simple: sign a rent agreement with the parent, transfer rent via bank (or at least on paper), and claim exemption under Section 10(13A) of the Income Tax Act. This allowed individuals to reduce taxable income while continuing to live in a house they essentially owned or had access to without financial rent burden.
However, this system—while technically possible—relied heavily on the lack of cross-verification mechanisms between tenants’ HRA claims and landlords’ income disclosures. That’s where the new rulebook steps in.
What’s Changed in 2025?
With the Income Tax Return (ITR) utilities for FY 2024-25 (AY 2025-26) being updated, salaried individuals claiming HRA must now mandatorily submit their landlord’s Permanent Account Number (PAN) if the annual rent exceeds ₹1 lakh. If your rent crosses ₹50,000 per month (₹6 lakh annually), TDS must also be deducted and deposited with the government.
This step isn’t just procedural—it’s designed to enable cross-verification. If you claim to pay rent, the government can now easily track whether your landlord (in many such cases, your parent) has declared this rental income in their ITR. If not, the claim is flagged.
How This Impacts the Parent-Rent Strategy
Claiming to pay rent to your parents without them actually disclosing rental income in their tax returns is now a direct red flag. Since PAN details are mandatory, the Income Tax Department can:
- Match the tenant’s HRA claim with the landlord’s (parent’s) income filings.
- Send notices for mismatched information.
- Disallow the HRA exemption retroactively, with penalties and interest.
In essence, unless your parent is genuinely declaring this income and you are paying rent consistently (with banking proof), the HRA exemption will not hold water.
Genuine Cases Still Allowed—But With Transparency
If you do stay in a rented portion of a parent-owned home and pay market-rate rent, you may still claim HRA—but only with full transparency:
- Provide a valid rent agreement.
- Submit landlord’s PAN to your employer if annual rent exceeds ₹1 lakh.
- Ensure your parent includes this rent as income in their tax return.
- Maintain rent payment proof via bank transfers or cheques.
In contrast, cash payments without documentation, no rental income reporting by the parent, or providing false PAN details can lead to disqualification and tax scrutiny.
When is the Landlord’s PAN Mandatory?
- Rent up to ₹1 lakh/year (₹8,333/month): PAN not required.
- Rent above ₹1 lakh and up to ₹6 lakh/year: PAN must be submitted to the employer.
- Rent above ₹6 lakh/year (₹50,000/month+): PAN submission + TDS deduction (at 5%) required.
If the landlord genuinely does not have a PAN, a written declaration including the landlord’s name and address must be submitted, though this may still trigger higher scrutiny.
Old vs New Tax Regime: HRA Not Available in New Regime
Another crucial point—HRA exemption is available only under the old tax regime. Taxpayers opting for the new, lower-rate regime must forgo most deductions and exemptions, including HRA.
Conclusion: Transparency is No Longer Optional
The era of rent-receipt “jugglery” is over. With digital integration, PAN tracking, and AI-based scrutiny, salaried employees must now ensure their HRA claims are clean, documented, and backed by genuine transactions.
If you’re still banking on a rent agreement with your parents but aren’t paying rent or reporting it truthfully—think again. The Income Tax Department isn’t just checking your ITR anymore—it’s checking both yours and your landlord’s.
Read More: Govt. Eases SEZ Rules to Attract Investments in Semiconductors, Electronics Manufacturing
