New Delhi: The Government of India has released draft income tax rules and forms under the proposed Income Tax Act, 2025, introducing stricter disclosure norms aimed at curbing fraudulent tax claims and improving transparency in the tax system. The new law is scheduled to come into effect on April 1, 2026.
Stakeholders have been invited to submit feedback on the draft rules, with final notifications expected next month.
Mandatory Disclosure for HRA Claims
One of the most significant changes affects House Rent Allowance (HRA) claims. Under the proposed Form 124, taxpayers will be required to disclose whether they have any family or other relationship with the landlord to whom rent is paid.
Currently, employees only submit rent details to their employer while claiming HRA benefits, without declaring any personal relationship with the landlord. Tax experts say the new requirement will help tax authorities identify inflated or fictitious rent claims, particularly those involving payments to relatives.
According to professionals, the move is designed to improve compliance without impacting genuine taxpayers.
Stricter Scrutiny of Foreign Tax Credits
The draft rules also introduce tougher compliance standards for claiming foreign tax credits. Under the revised Form 44, auditors will have enhanced responsibilities.
Chartered Accountants will now be required to independently verify:
- Foreign tax deduction certificates
- Proof of tax payment overseas
- Currency conversion based on applicable exchange rates
- Eligibility under applicable tax treaties
Experts caution that this may pose challenges in jurisdictions where consolidated tax statements are issued or where taxes are paid in a different financial year.
Tighter PAN Application Rules for Companies
The government has also tightened Permanent Account Number (PAN) application norms for companies. Applicants must now declare that no PAN has previously been issued in the company’s name.
If PANs exist for branch offices, project offices, or predecessor entities, companies will be required to conduct internal checks to prevent duplication.
Expanded Disclosures in Tax Audit Reports
Under the revised Tax Audit Form 26, auditors must now clearly explain the impact of any adverse remarks, qualifications, or disclaimers in statutory audit reports on taxable income, losses, or book profits.
Additionally, tax audit reports will have to disclose details of:
- Accounting software used
- Server locations and IP addresses
- Country of data storage
- Presence of backup servers located in India
Transparency Gains, Higher Compliance Costs Expected
While experts acknowledge that the new rules may increase compliance and audit costs for taxpayers and businesses, they believe the changes will significantly strengthen accountability and transparency in India’s tax administration.
The proposed framework reflects the government’s broader push toward data-driven scrutiny and reduced scope for misuse of tax exemptions.