How to Claim HRA from April 2026: New Form 1

How to Claim HRA from April 2026: New Form 124 & Rules Explained
📅 Income Tax Provisions Effective from 1st April 2026
(Form 124 & HRA Claim – Detailed Explanation)
The Income Tax Act, 2025 and Income Tax Rules, 2026 have introduced structural and compliance changes for salaried taxpayers. One of the most important changes is:
👉 Replacement of Form 12BB with new Form 124
👉 Applicable from 1st April 2026 (Tax Year 2026–27 onwards)

🧾 1. Introduction of New Form 124
🔄 What Changed?
• Old Form 12BB → New Form 124
• Used for declaring HRA, deductions, and exemptions to employer
📌 This is not just renaming—it includes enhanced disclosure requirements

🏠 2. Key Changes in HRA Claim Provisions
✅ (A) Mandatory Detailed Disclosure
Under new rules, employees must provide:
• Rent paid during the year
• Landlord name & address
• Landlord PAN (if rent > ₹1 lakh/year)
• NEW: Relationship with landlord
👉 This is a major compliance addition
👉 Especially relevant when rent is paid to:
• Parents
• Relatives
📌 Non-disclosure may trigger scrutiny

✅ (B) Strict Documentation Requirement
From 2026, HRA claims require:
• Rent receipts
• Rental agreement
• Proof of payment (preferably bank transfer)
👉 Employers are expected to verify documents before allowing exemption
👉 Fake or unsupported claims may be rejected

✅ (C) Expansion of Metro City Benefit
📈 Big Change in HRA Calculation
Earlier:
• Metro cities → 50% of salary
• Non-metro → 40%
Now (from 1 April 2026):
• 8 cities eligible for 50% limit, including:
o Bengaluru
o Pune
o Hyderabad
o Ahmedabad
👉 This increases HRA exemption eligibility significantly

✅ (D) Governing Rule Changed
• Earlier: Rule 2A (Income Tax Rules, 1962)
• Now: Rule 279 (Income Tax Rules, 2026)
👉 But calculation formula remains the same:
• Least of:
1. Actual HRA received
2. Rent – 10% of salary
3. 50% / 40% of salary

✅ (E) PAN Requirement Strengthened
• If annual rent exceeds ₹1,00,000:
o Landlord PAN mandatory
• If not available:
o Written declaration required
o Employer may deny benefit during TDS stage

⚠️ 3. Increased Compliance & Risk
The new system focuses on:
🔍 Transparency
• Relationship disclosure
• Digital audit trail
🚫 Anti-abuse Measures
• Targeting fake rent receipts
• Preventing circular transactions (family arrangements)
📊 Employer Responsibility
• Employers must verify before allowing TDS benefit

💡 4. Important Practical Implications
👨‍💼 For Employees
• Must maintain proper rent documentation
• Cannot claim HRA casually
• Paying rent to parents → must be genuine
🧾 For Professionals (CA / Tax Consultants)
• Advisory role increases
• Need to:
o Guide clients on documentation
o Review Form 124 carefully
o Ensure compliance before payroll closure
🏢 For Employers
• Higher responsibility in TDS computation
• Risk of disallowance if verification not done

🚫 5. Important Clarification
👉 HRA exemption still NOT allowed under New Tax Regime
• Available only in Old Tax Regime
• Under new regime → full HRA taxable
________________________________________
📌 6. Summary of Changes
Particulars Up to 31 March 2026 From 1 April 2026
Declaration Form Form 12BB Form 124
Disclosure Basic Detailed + relationship
Metro limit 4 cities 8 cities (incl. Bengaluru)
Governing Rule Rule 2A Rule 279
Documentation Moderate Strict verification
________________________________________
🧾 Conclusion
The provisions effective from 1st April 2026 clearly indicate a shift towards:
✔ Structured reporting
✔ Higher transparency
✔ Reduced misuse of HRA claims
👉 Form 124 is not just a new form—it is a compliance upgrade.
Disclaimer:
This article is published by PACS & ASSOCIATES for informational and educational purposes only. The content is based on our understanding of the applicable provisions of the Income-tax Act, GST laws, rules, and relevant notifications as of the date of publication.
While due care has been taken to ensure the accuracy and reliability of the information, tax laws are subject to frequent amendments, judicial interpretations, and administrative clarifications. Therefore, the information contained herein may not be complete or up to date at all times.
This content should not be construed as professional, legal, or tax advice. Readers are strongly advised to consult with a qualified tax professional or contact PACS & ASSOCIATES for advice tailored to their specific facts and circumstances before taking any action.
PACS & ASSOCIATES shall not be liable for any loss or damage, direct or indirect, arising from reliance on the information provided in this article.
For professional assistance, feel free to contact PACS & ASSOCIATES at 📞 8547888880 | 📧 i