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      What are the Tax Rules for Rental Income from Commercial Property?

      • 5 min read
      • Last Modified Date: January 31, 2024
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      • Is there an income tax on rental income from commercial property in India? What taxes apply to commercial properties that get utilized for the owner’s company, as well as those that are rented or sold? In each scenario, we look at the ramifications.
      • Property is one of India’s oldest investment opportunities, predating the introduction of other financial instruments such as mutual funds and direct equity. Anyone investing in commercial buildings do so for a variety of reasons, including personal usage or rental income. 
      • Where does rental income from commercial property under income tax fall? Rental income from commercial property under income tax gets taxed under a certain category. Tax on commercial property rent in India is such that gets normally taxed per the heading of ‘income from dwelling property’.
      • This is affirmative irrespective of whether your property is commercial or residential properties. The foundation for taxing rental income on commercial property is the higher the rent gets obtained or rent gets anticipated to get taken by similar property types for the market.
      • If you don’t own properties and lease it, the revenue from the leasing of commercial properties gets taxed per the “other sources of income.” heading.
      • If you manage a business center on your land and provide extra services, the revenue can be classified as income from a business if the extra services, as well as the leasing out of the space, make up a major amount of the aggregate. Excluding such situations, any income derived from your property will be taxed per the category specifically allocated for income from property, irrespective of the assigned name to the income.
      • Since income from leasing that property gets taxed per the category “income from house property,” no deductions may be claimed against the commercial property rental income unless the legislation explicitly allows it. It’s best not to claim additional costs and instead present your true rental income per ‘earnings and gains of business of profession.’ category.

      Also Read: Tax on Rental Income: How To File & Claim To Save Rental Income Tax.

      Deductions from the tax on commercial rental income from a rented property

      • The income tax regulations enable specific deductions against the rent you get while computing income under the heading “income from housing property.” The first deduction offered is a standard deduction on rental income. It is 30% of the rent collected or due for such property.
      • This standard deduction on rental income is applicable regardless of the amount spent on a commercial or residential property that is rented out, or a self-occupied residential property that is considered as rented out.
      • In addition to the above statutory deduction for repairs and other expenses, the tax rules permit a deduction for interest paid on any money borrowed for the acquisition, building, repair, or reconstruction of your commercial property.
      • The interest deduction is accessible for all sorts of properties, whether commercial or residential, under Section 24(b) of the Income Tax Act. Processing and prepayment cost paid to any financial institution to get a loan can be claimed as interest. You can deduct interest not just on money borrowed from banks, but also on money borrowed from friends and family.
      • Although you can claim the full interest against the rental income on the commercial property after a standard deduction on rental income for commercial property that is let out, there is a limit of Rs two lakhs for the amount of loss computed under the head’s income from house property for all the properties combined, which can be set off against your other incomes during the year.

      Also Read The Updated Rental Income Tax Calculator For India.

      For the next eight years, any loss computed under this heading can be carried forward and set against income computed under the same heading. Only once possession is acquired and in five equal yearly installments, commencing with the year in which you take possession, may you claim a deduction for interest paid during the building period for an under-construction property.

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      Taxation of commercial property used for own business or profession

      • Is there a commercial rent tax India? Is there a tax on rental income from commercial property India? Commercial properties that are partially or entirely employed for your business or profession are not taxed in your hands if the proportional share of such property is used in the business.
      • As a result, you cannot deduct any notional rent paid on such commercial property from your company revenue. However, you can deduct the costs of repairing and maintaining such property from your business profits. You can also claim the entire amount of interest as a business expense, with no limit.
      • Please note that no deduction is possible under Section 80C for repayment of the principal amount of a house loan acquired for such commercial property, as this is only applicable for residential property.

      Also Read: Still, thinking of ways to get an exception in your rental income tax? Here are some efficient tips to avoid tax on your rental income!

      Taxation of profits on the sale of commercial property

      • Profits from the sale of any commercial property you own and use for your own business are taxed as short-term capital gains if no other property falls into the same asset type, regardless of how long you possess it.
      • However, according to certain court declarations, you can claim a tax deduction for commercial property under Section 54F by investing the net consideration in a residential housing property that has been held for more than 24 months.
      • Alternatively, you can invest your indexed capital gains in capital gain bonds issued by certain organizations and claim Section 54EC exemption.
      • The profit on the sale of a business property that has been rented out will be considered capital gains. If the property is kept for more than 24 months, it will be considered long-term and will be taxed at a fixed rate of 20%, regardless of the amount. You can reduce your tax liability by investing in a residential property under Section 54F of capital gains bonds under Section 54EC, as discussed above. If the property is sold before 24 months, the profits are taxed as ordinary income and are taxable as short-term capital gains.
      • Rent is an excellent option to invest in the evergreen real estate business because it is the major source of income for many people. But there is a tax on rental income from commercial property India.
      • One must be aware of the rental income tax rate and commercial rent tax in India. One must pay all necessary commercial property rental income taxes on time. Most property owners in India are unaware of the tax deduction for commercial property and exemptions available to them while paying rental income on commercial property tax.
      • Assetmonk is the place to go if you’re looking for a superb investment companion. We offer our investors a variety of investment opportunities across India, with IRRs ranging from 14 to 21%. Visit our website, Assetmonk to explore. 

      What are the Tax Rules for Rental Income from Commercial Property? FAQ’S:

      How is commercial property rental income taxed?

      In India, rental income is regarded the same as any other kind of income and is included in the taxable income bands. If the amount received as rental income exceeds Rs. 2,50,000 per year, the property owner will be required to pay rental income tax.

      How much tax do landlords pay on rental income or rent from commercial property?

      On the standard deduction that a landlord might take on his or her rental income. On gross rental income, the Internal Revenue Service provides for a standard deduction of up to 30%. The property owner can use this standard deduction to deduct the cost of renovations or upkeep.

      How can I avoid paying tax on my rent from commercial property?

      If you’re merely planning to be a (very) part-time landlord, on the other hand, you can avoid paying taxes on your rental income if you rent out your home for 14 or fewer days every year. The 14 days don’t have to be consecutive; all you have to do is stick to it to avoid paying taxes on the money you earn. This is a good way to avoid rent from commercial property income tax.

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