Everything You Need to Know About the Tax Benefits on Commercial Property

Sujan Afi S

The Story

There can be a huge gap between what we dream of and reality. At times our passion can get suppressed under the pressure of harsh reality. Every one of us has several responsibilities on our shoulders. Circumstances do come when you might have to forget about your passion and do something else to support your near and dear ones.

You might be one amongst them who can have a passion for business! However, the dream had not been realised because of lack of financial support or due to the huge responsibility that you have. Does that mean that you should not pursue your dream? You might think, “Where will the amount come from?” Relax! You can invest in commercial property (shop, hotel, etc.) even with the help of a loan! 

The next questions to pop up in your mind are, “How will I manage to pay back the principal amount with the interest? Won’t that be a huge amount?” Chill! Everything can be sorted out. All you need is a little research and proper guidance! Only then you can have an idea about the various advantages of the loan and also the tax benefits on commercial property.

Delving Deep

For an ordinary Indian, it is very easy to find out the way of getting income tax benefits. Although income tax is applicable on both residential and commercial properties, in this article, we are going to discuss tax benefits on a commercial property only. 

Any kind of income from housing property (both residential and commercial) is taxable in India under the head of ‘Income from House Property’. The total amount of rent received from commercial property, generally known as ‘Annual Value’, is taxable under this head; although, only after deduction of certain expenses. If you are not the owner of the commercial property and is recognized as the sublet of the property then your income from the sublet is taxable under the head of ‘Income from Other Sources’.  For example, you might run a business with two of your friends. So, the tax that you need to pay will be generated on the share that you have in the business. 

Tax Deduction

Now, you might think that the tax will be of huge amount. So, the amount that will remain with you at the end of the month will be less than that you expect. Relax! There are several deductions in the tax that you need to pay. There are two types of tax deductions available according to the Income Tax Act of India for the income from commercial property (annual value). One is a standard deduction and another is a deduction of interest.

  1. Standard Deduction: Standard deduction generally refers to all those deductions related to repairs, insurance, electricity, water supply, etc. Here, the amount of tax deduction largely depends on the repair expenses you have made for your commercial property.
  1. Deduction of interest (Section 24): This kind of tax deduction is applicable on the interest paid for selling or purchasing or reconstruction/repairing various kinds of commercial property. You can also claim a tax deduction on the amount of loan paid for processing fees and prepayment fees for commercial property. In this case, the processing fees and prepayment fees paid for a commercial property loan are considered as interest; so, they are treated for tax deduction under Section 24. There is no limit for the deduction of interest for a commercial property loan. Thus, you can claim a tax deduction on the whole interest amount. This indicates that you can claim full interest for the amount of money you borrowed to sell/purchase/construction/repair/renovation of your commercial property without any limit.
  • It is very important to note down that according to the new tax regime there are limits of the tax benefits in case of letting out commercial housing property. One can claim both standard deduction and interest deduction for let out commercial property but only up to the net annual value (gross rent – municipal taxes).

Conditions for a tax deduction on commercial property

• The deduction is permitted on the year wherein it accumulates irrespective of the year on which it has been paid.

• The derivation concerning interest is accessible for cash acquired from anybody including companions and family members.

• There is no restriction on the deduction on the interest sum on loan taken for commercial property, no matter whether the property is let out or utilized for your business/calling.

• There is no deduction available during the construction of the property.

• Under section 80 C you are not allowed for any kind of tax deduction for the repayment of the loan that has been taken for commercial property.

If you are using the commercial property for your profession or business, the proportionate share is not taxable under this head. Further, you cannot claim any notional rent in respect of such property while you calculate the profits in business.

Nevertheless, if you are utilizing your business property for your business or calling, you are permitted to claim any genuine costs brought about for the fixes and support of the same. In like manner, you are permitted to claim deterioration on the same commercial property along with the interest which you are paying on the loan advance taken to purchase the property.

Conclusion

I hope now you have a clear image in your mind about the tax benefits if you take a loan on commercial property. So, what are you waiting for? Fly with your colourful wings! Realise your dream now! For ‘now’ is the time! Utilise it fully. Nevertheless, you can watch this to have a clearer idea. If you still find any difficulty, feel free to drop a mail at info@roodland.com to get in touch with our experts. We have a dedicated team to help you in every possible way. Also, visit our LinkedIn page to stay updated about various news related to Real Estates.  

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