Rental flat

Yes you can do so.Your Income will be chartgeable to tax under house property and in case of your wife under other sources.

Thank you very much. What kind of documentation would I have to do in this case?

This arrangement is a colourable device and tantamount to diversion of income. In any case if your wife can sub-lease the flat at Rs 15K, the same is lettable value of the flat and the ITO is free to adopt this value as ALV of flat in your hand. Thus there is possibility of double taxation in this case, one on presumptive basis in your hand and other actual taxation in hands of your wife. Besides, the sub-lease income in your wife's hand being in nature of income from other source, no benefit of 30% statuary deduction for repairs etc will be available to her. It is advisable to refrain from this kind of arrangement.

If I lease it to a friends wife and she does a sub lease, still it would be a problem?

As such there is no problem in such arrangement. However, please check the tax implicaions if your friend's wife falls under higher income tax bracket.

 Very good. Then fight for life to get it back. Today's friend, tomorrow's enemy.

Jaideep Ji, I intentionally avoided the vital point raised by Anil Ji being your personal matter. Howerever, one should not be so much overwhelmed by tax planning that thin boundary between tax avoidance and tax evasion is crossed. Tax planning is not isolated from other implications which may be far more complicated and one may end up losing more than what he saves.

 I am more concerned with getting the flat back. All your income and tax planning will go down the drain.

Anil Ji, I am in full agreement with you. That is why I am suggesting to refrain from this transaction which might save Jaideep Ji some tax but later may result in more complex problems including losing the property itself. Anyway it is individual's personal choice.

 To each his own. If immediate gain far outweighs the long-term loss, please go ahead and rent out the property. Needless to say you have to consider all pros and cons not to repent in leisure.