Rule 204 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 204 of the Income-tax Rules, 2026 lets an employee report other-employer salary and other income in Form No. 122, and puts the perquisite statement in Form No. 123 above Rs 1,50,000 of salary; rule 205 requires claim evidence in Form No. 124.
What the employee may tell the employer
Sub-rule (1) of rule 204: the assessee may furnish the following particulars in Form No. 122 to the person responsible for making the payment referred to in section 392(1), for the purpose of making deduction under that sub-section:
| Clause | Particular |
|---|---|
| (a) | Any income under the head "Salaries" due or received from any other employer or employers during the tax year |
| (b) | Any loss under the head "Income from house property" for the same tax year |
| (c) | Any income chargeable under any head other than "Salaries", not being a loss under any such head, other than the house property loss in clause (b), for the same tax year |
| (d) | Any tax deducted or collected at source under Chapter XIX-B for the same tax year |
The asymmetry in rule 204(1) is deliberate and often missed. Clause (b) admits a house property loss. Clause (c) admits other-head income but expressly excludes a loss under any such head. So an employee may ask his employer to give effect to a housing-loan interest loss, but not to a capital loss or a business loss. Those must wait for the return. An employer who sets off a business loss against salary at the employee's request has gone outside the rule.
Note also that rule 204(1) is permissive — may furnish. The employee is not obliged to disclose a second employment. But if he does not, both employers apply the basic exemption and the slab afresh, and the shortfall surfaces as a self-assessment liability with interest at the time of filing.
The perquisite statement — Form No. 123 or Form No. 130
Sub-rule (2) of rule 204 runs the other way: the person paying salary must give the employee a statement of correct and complete particulars of perquisites or profits in lieu of salary and the value thereof. Which document carries it depends on one threshold:
| Salary paid or payable for the tax year | Where the perquisite particulars go |
|---|---|
| Not more than Rs 1,50,000 | The relevant columns provided in Form No. 130 — clause (a) |
| More than Rs 1,50,000 | Form No. 123 — clause (b) |
Sub-rule (3): "salary" for the purposes of rule 204 has the same meaning as in rule 15. The 1962 parallels are rules 26A and 26B.
Two practical consequences. First, the threshold is tested on salary paid or payable for the tax year, so a mid-year joiner whose annualised package is large may still fall below it. Second, at or below Rs 1,50,000 there is no separate statement at all — the particulars ride inside Form No. 130, the TDS certificate itself.
Rule 205 — evidence of claims
Sub-rule (1) of rule 205: the assessee shall furnish to the person responsible for making payment under section 392(1) the evidence or the particulars of the claims below, in Form No. 124, for estimating his income or computing the tax to be deducted at source. Where rule 204 says may, rule 205 says shall. The 1962 parallel is rule 26C.
| Sl. No. | Nature of claim | Evidence or particulars |
|---|---|---|
| 1 | House rent allowance | Name, address and Permanent Account Number of the landlord or landlords where the aggregate rent paid during the tax year exceeds Rs 1,00,000, and the relationship with the landlord, if any |
| 2 | Leave travel concession or assistance | Evidence of expenditure |
| 3 | Deduction of interest under the head "Income from house property" | Name, address and Permanent Account Number of the lender |
| 4 | Deduction under Chapter VIII | Evidence of investment or expenditure |
The Rs 1,00,000 test in rule 205 is on the aggregate rent paid during the tax year, not on a monthly figure and not per landlord. An employee who changes flats mid-year and pays Rs 60,000 to one landlord and Rs 55,000 to another crosses the threshold at Rs 1,15,000 and must give the PAN of both — which is why the table says "landlord or landlords". The added requirement to disclose the relationship with the landlord exists because rent paid to a parent or spouse is the commonest soft spot in an HRA claim.
How the two rules work together
- Rule 204(1) — employee may disclose other income and the house property loss, in Form No. 122.
- Rule 205 — employee shall support HRA, LTC, housing interest and Chapter VIII claims, in Form No. 124.
- Rule 204(2) — employer shall report perquisites back to the employee, in Form No. 123 or the columns of Form No. 130.
Together they close the loop on a salary estimate: what the employee adds, what the employee proves, and what the employer discloses.
Worked example
| Facts | Position under rule 204 and rule 205 |
|---|---|
| Employee joined in September; salary from a former employer | May report it in Form No. 122 under rule 204(1)(a) |
| Employee has a Rs 2,00,000 house property loss | Admissible — clause (b) |
| Employee has a Rs 3,00,000 short-term capital loss | Not admissible — clause (c) excludes losses |
| Employee has Rs 40,000 of bank interest | Admissible as other-head income under clause (c) |
| Annual salary Rs 1,20,000 with a rent-free flat | Perquisite particulars go in the columns of Form No. 130 |
| Annual salary Rs 9,00,000 with a car and a flat | Perquisite particulars go in Form No. 123 |
| HRA claimed; rent Rs 96,000 for the year | No landlord PAN required — below Rs 1,00,000 |
| HRA claimed; rent Rs 60,000 plus Rs 55,000 to two landlords | PAN of both — the aggregate is Rs 1,15,000 |
| Rent paid to the employee's mother | The relationship must be stated in Form No. 124 |
| LTC claimed with no bills | Evidence of expenditure is required by Sl. No. 2 |
Compliance checklist
- Collect Form No. 122 early in the tax year from anyone who joined mid-year.
- Accept the house property loss but decline other-head losses — rule 204(1)(c) excludes them.
- Pick up TDS and TCS under Chapter XIX-B reported in clause (d) when estimating the shortfall.
- Test each employee against Rs 1,50,000 to choose Form No. 123 or the Form No. 130 columns.
- Take the meaning of "salary" from rule 15, not from the payroll definition.
- Collect Form No. 124 with evidence before finalising the last quarter's deduction.
- Aggregate the whole year's rent across landlords before deciding on the PAN requirement.
- Record the relationship with the landlord wherever one exists.
Common mistakes
- Setting off a business or capital loss against salary at the employee's request.
- Treating Form No. 122 as compulsory — rule 204(1) says "may".
- Applying the Rs 1,50,000 test to the annualised package instead of salary for the tax year.
- Testing the Rs 1,00,000 rent threshold per landlord rather than in aggregate.
- Allowing HRA on a self-declaration where rule 205 requires the landlord's PAN.
- Accepting a Chapter VIII claim without evidence of investment or expenditure.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallels are rules 26A and 26B for rule 204 and rule 26C for rule 205, given for tracing only. Verify the current text and form numbers before running a payroll cycle on them.