1. Introduction
The issue of attribution of rental income between spouses is an oft-contested matter under the Indian Income-tax framework. With increasing tax scrutiny and application of clubbing provisions under Section 64 of the Income-tax Act, 1961, taxpayers must exercise caution in their planning, especially when the ownership of the property and recipient of rent differ.
This article provides a comprehensive legal, procedural, and practical examination of whether a wife can claim rental income from property owned by her husband, and how to structure such arrangements compliantly, supported by judicial pronouncements and updated tax law positions as of FY 2024-25.
2. Legal Framework Under Income-tax Act, 1961
2.1 Section 22 — Basis of Taxability
Section 22 of the Income-tax Act provides that income from house property is taxable in the hands of the owner of the property. The term “owner” here refers to legal and beneficial ownership.
“The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner…”
— Section 22, Income-tax Act, 1961
2.2 Section 64(1)(iv) — Clubbing Provisions
Section 64(1)(iv) states:
“In computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.”
Implication: If the husband gifts a property to the wife, or transfers it without fair market consideration, the rental income shall still be taxable in the husband’s hands.
3. Judicial Precedents and Case Laws
Several rulings have clarified the scope of ownership, income attribution, and clubbing:
3.1. CIT v. Prem Bhai Parekh (1970) 77 ITR 27 (SC)
Facts: Assessee transferred shares to minor sons without adequate consideration. Dividends from such shares were claimed to be taxable in the minors’ hands.
Held: Supreme Court held that the income should be clubbed with the father’s income under Section 16(3) of the 1922 Act (now Section 64).
Relevance: Even if income is legally received by another person, origin of ownership (gift or transfer) is crucial.
3.2. Smt. Savita Mohan v. CIT (2000) 241 ITR 329 (All)
Held: If a husband buys property in his wife’s name without documentary evidence of her independent income, the income from such property will be taxed in the husband’s hands.
3.3. CIT v. Smt. B. Saroja Devi (1990) 183 ITR 389 (SC)
Held: Merely transferring income without transferring the source asset will not allow shifting of tax incidence. Income must emanate from a valid and substantive asset transfer.
3.4. R.B. Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570 (SC)
Held: The term “owner” under Section 22 refers to the person who is entitled to receive income in his own right and not merely as a name lender or benami.
4. When Can Wife Show Rental Income?
Here are scenarios where the wife may validly show rental income, without attracting clubbing:
Case 1: Wife Owns Property Purchased from Her Own Income
If the wife has purchased the property from her salary, business income, or inheritance, then the rental income belongs to her.
Supporting Evidence:
- Bank statements showing payments
- Registered purchase deed
- Income tax returns of wife showing fund source
Case 2: Property Purchased by Wife from Adequate Consideration Paid to Husband
If the husband sells the property to wife for adequate market consideration, and capital gains (if any) are reported by the husband, clubbing will not apply.
Case 3: Gift from Husband to Wife
Clubbing will apply. Even though the property is in wife’s name, the income will be taxed in the husband’s hands per Section 64(1)(iv).
Cited in: Savitri Devi v. ITO (2001) 116 Taxman 94 (Del)
Case 4: Rent Received in Wife’s Bank Account, But Husband is Owner
Rent received in wife’s bank account does not change the tax incidence. What matters is legal ownership, not recipient of income.
5. Documentation Requirements
To establish independent ownership and avoid litigation, the following documents are essential:
| Document | Purpose |
|---|---|
| Registered Sale Deed | Establishes legal ownership |
| Bank Transfers/Evidence of Payment | To prove adequate consideration |
| Rental Agreement in Wife’s Name | To support lease arrangement |
| Form 26AS/Form 26QC Compliance | PAN linkage with rental TDS |
| Property Tax Receipts/Utility Bills | Proof of control and possession |
6. Taxability in Joint Ownership
When the property is jointly owned, income should be apportioned in the ratio of ownership or contribution, as clarified in CIT v. R.M. Chidambaram Pillai (1977) 106 ITR 292 (SC).
If both spouses contribute equally, rental income can be split equally.
However, if contribution is not equal, the income split should reflect the actual contribution.
7. Latest Updates and Cautions (2024-25)
With technology-enabled scrutiny in Income Tax:
- The PAN of owner is matched with Form 26AS and AIS (Annual Information Statement).
- Benami Property Transaction Act, 1988 (amended 2016) empowers the department to question the real owner and penalize benami transactions.
- Any unexplained property in the spouse’s name may invite scrutiny under Section 56(2)(x) (gift received without consideration).
8. Practical Tax Planning Insights
Do not rely solely on name transfer — ensure economic ownership is clear.
If the objective is to legitimately transfer income, do a registered sale and report capital gains.
Avoid transferring income from assets without transferring the source — this is vulnerable under clubbing provisions.
Involve a Chartered Accountant to structure ownership and rent agreements correctly.
9. Conclusion
To summarize, rental income is taxable in the hands of the legal owner of the property. The wife can show the income only when she is the actual owner, either by purchase from her own funds or by paying fair consideration to her husband. Gifting the property without consideration leads to clubbing of rental income under Section 64(1)(iv).
For compliant tax planning, ensure:
- Documentary evidence of ownership
- Adherence to fair value in transactions
- Proper reporting and filing
Clubbing provisions are anti-avoidance in nature and must be interpreted strictly in light of ownership and source principles.
References:
- Income-tax Act, 1961 – Sections 22, 64(1)(iv), 56(2)(x)
- CIT v. Prem Bhai Parekh (SC)
- CIT v. B. Saroja Devi (SC)
- R.B. Jodha Mal Kuthiala v. CIT (SC)
- Savita Mohan v. CIT (All)
- Benami Property Transactions Act, 1988
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