Many property owners typically men with high taxable income put rental agreements in the name of their wife or children to avoid higher tax brackets on rental income.
But,
As per Section 22 Income Tax and Supreme Court rulings, the legal owner is the person whose name is in the property title/registry or has a valid Power of Attorney or registered Agreement to Sell and rental income is taxable in the legal owner's hands.
Note: Income from house property is legally taxable in the name of the legal owner.
Clubbing provisions
Under per Section 99 of the Income Tax Act, if rental income is shown in the wife's name but the property was bought by the husband, that income must be clubbed with the husband's taxable income.
How AI Traces Tax Evasion?
The Income Tax Department uses AI to track ownership and rental income mismatches through TDS, property registration records (SFT reports), and ITR filings.
TDS provisions
When an individual buys property, a 1% TDS is deducted u/s 194-IA, which is recorded in the Taxpayer Information Summary (TIS) and that is accessible by AI.
But u/s 194-I, TDS is deducted and reported when rent payments exceeds the limits - which can expose the real owner.
Statement of Financial Transaction (SFT)
Sub-registrars upload SFTs to the Income Tax Department for properties registered above 30 lakhs (old Section 285BA, new Section 508).
First-time ITR risk
If a wife/child suddenly files ITR for rental income for the first time without corresponding ownership evidence, AI systems may flag the case.
Conclusion
Taxpayers must focus on tax planning, not tax evasion. Wrong practices may go unnoticed temporarily but can create big problems if flagged.
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