I need to rent out my flat. Its on my name. My wife is housewife. Can i rent out the flat to my wife on a nomial rent and then she can rent it out to someone else? Will it allow me to save tax? Say I rent out to her on 5K and she rents out to someone else on 15k. In that case will I pay tax only on 5k and she need to pay on 10 k?
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.
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.
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.