New I-T forms provide for tenant-landlord relationship disclosure for claiming tax deduction

New Delhi: The government has come out with draft income tax forms that seek disclosure of tenant-landlord relationship for claiming I-T deductions and increased responsibility of auditors and companies for tax credit claims on foreign income.

The draft forms also propose to entrust auditors with greater responsibility for checking PAN duplication and tax liability arising out of adverse audit observation.

The new Income Tax Act, 2025, which replaces the six-decade-old law, will come into effect from April 1, 2026.

The government has circulated draft Rules and Forms for stakeholder consultation. The final Rules and Forms will be notified next month.

The new Form 124 requires disclosure of a relationship, if any, between a tenant (assessee) and a landlord, which tax experts said could act as a meaningful deterrent against fictitious or inflated rental claims, as it introduces transparency at the first point of reporting itself.

An assessee claiming House Rent Allowance (HRA) is required to submit a declaration to the employer with regard to the rent estimated to be paid during the fiscal. Under the new Form 124, the assessee will also have to indicate the relationship with the landlord.

"From a governance perspective, even with this new disclosure, genuine arrangements would remain protected, while artificial claims, unsupported by ownership or genuine payments, could be identified with greater precision and, where warranted, disallowed," Nangia Global Advisors, Partner, Sandeepp Jhunjhunwala said.

The draft forms also propose to enhance the responsibility of auditors as well as the companies with regard to the disclosure of tax credit claims on foreign income.

As per the proposed Form 44 pertaining to 'Statement of income from a country or specified territory outside India and Foreign Tax Credit (FTC)', accountants would have to independently examine foreign tax withholding certificates, payment proofs, exchange rate conversions, and treaty eligibility conditions, such as beneficial ownership and tax residency status, for a valid claim of FTC.

Jhunjhunwala said this provision would create challenges in cases where foreign jurisdictions issue consolidated tax statements without income-wise breakups, where taxes are paid in a different financial year than the income is offered in India, or where foreign tax assessments are provisional.

"Accountants would be required to interpret treaty provisions such as limitation of benefits clauses, credit caps, source rules, etc., which require detailed documentation," he added.

With regard to PAN application by companies, the new forms make it mandatory that the applicant file a declaration saying that the company does not already possess a PAN.

With new forms, entities will have to conduct internal due diligence before applying, such as verifying whether branches, project offices, or predecessor entities already hold a PAN, to avoid duplicate applications.

Jhunjhunwala said for foreign entities entering India for the first time, coordination with advisors becomes critical to confirm that no earlier withholding-tax-driven PAN exists.

"The legal consequences clause acts as a deterrent against multiple PAN holding and identity manipulation, strengthening database integrity, but also increases responsibility on applicants to ensure accuracy and proper record verification before submission," Jhunjhunwala said.

The new Tax Audit Form No 26 makes it a mandatory requirement to disclose whether any qualification, adverse remark, disclaimer, or emphasis of matter in the Statutory Auditors' report impacts income, loss, or book profit, and significantly raises the income tax consequences of audit observations made under the Companies Act 2013.

This means companies can no longer treat audit qualifications as mere disclosure matters - for instance, if the Statutory Auditor flags an improper revenue recognition/ doubtful recoverability of receivables/ incorrect inventory valuation/ or inadequate provisioning, the Tax Auditor would need to evaluate whether these issues have resulted in under-statement of taxable income or book profits.

"Companies would therefore need to assess the income tax impact of any audit remarks before finalising income tax return, ensure alignment between statutory and tax positions, and maintain clear documentation explaining why a particular qualification does or does not affect taxable income, to deal with any future litigation," Jhunjhunwala said.

Also, the tax audit report of entities will have to disclose the details of the accounting software used, cloud/ software where the books are stored, including the IP address, country of such storage, and the address of the physical backup server located in India.