HRA and SubLease


Can a landlord sublease his home to his wife who does not have any income, and thereby save on tax. Effectively, he will collect a smaller amount as rent and then his spouse sub leases to tenants at a premium and records as income from business while the landlord pays tax on the nominal rent from his spouse. This is to ensure a sustainable remuneration.

a. Can the tenants claim HRA for paying rent to spouse?
b. Can the landlord collect rent from his wife as arrears in the subsequent year as per agreement.
c. Is there any potential issue if all of it is declared and filed?
d. Are there any changes to the treatment if the landlord leases to his spouse with sub lease for more than 12 years?

Hello @UrbanNitin,

To answer your questions:

a. Tenant can claim HRA for rent paid by him.
b. Rent can be collected as per the rent agreement.
c. Yes, it can result into a potential issue. As per section 60 of Income tax act, If an individual transfers any income without transfer of asset then such income shall be taxed in the hands of transferor.
d. Period of lease might attract other acts, but it is unrelated to tax provisions.

Hope this helps!

Thanks so much for this. So profits from leasing or sub leasing activity is not really entertained? How can this be construed as a business activity wherein the spouse is sub leasing the home to tenants on a composite basis.