No, you cannot claim depreciation on a commercial property that you have let out in India. Depreciation is allowed as a deduction only for properties used for your own business or professional purposes. Since you have rented out the property, it is treated as a source of income from house property (or income from rent), not as a business asset in your hands.
Key Points:
Income from House Property:
The rental income from your commercial property is taxable under the head “Income from House Property” in your income tax return.
Standard Deduction: You can claim a flat 30% deduction on the net annual value of the property (rental income minus municipal taxes paid) as a standard deduction for maintenance and other expenses. This is irrespective of actual expenses.
You can also claim a deduction for the interest paid on a loan taken for purchasing or constructing the property.
Depreciation:
Depreciation is allowed only for properties that are part of your business or profession. For example, if you own a commercial building used for running your business, you can claim depreciation on that building as a business expense.
In the case of rental income, depreciation cannot be claimed because the property is not being used for your own business purposes.
Alternative Options:
If you let out the property as part of your business activity (e.g., running a hotel or co-working space), and the rental income is treated as business income, then you may be able to claim depreciation as a business expense.
In your case, since you are earning rental income from the commercial property, you cannot claim depreciation but can take advantage of the 30% standard deduction and other allowable deductions related to house property in
explain above with relevant sections in income tax act
Certainly! Here’s a detailed explanation with references to relevant sections of the Income Tax Act, 1961 in India:
1 Rental Income from Commercial Property
Rental income earned from letting out a property (commercial or residential) is taxable under the head “Income from House Property”, as per Section 22 of the Income Tax Act. The key point is that the property is not used by you for business or professional purposes but is instead let out to earn rental income.
2 Deductions Allowed Under “Income from House Property”
a. Standard Deduction (Section 24(a))
A flat 30% deduction is allowed on the Net Annual Value (NAV) of the property for maintenance and repairs.
This is a statutory deduction, and you cannot claim additional expenses for maintenance, repairs, or depreciation.
The formula for NAV: Net Annual Value (NAV)=Gross Annual Value (GAV)−Municipal Taxes Paid
b. Interest on Loan (Section 24(b))
If you have taken a loan for purchasing, constructing, repairing, or reconstructing the property, you can claim a deduction for the interest paid on the loan. There is no cap on the deduction for interest in the case of let-out properties.
3. Depreciation
Depreciation is governed by Section 32 of the Income Tax Act.
Depreciation is allowed only on assets used for the purpose of business or profession during the relevant financial year. Since the let-out commercial property generates income taxable under “Income from House Property” and is not used for business purposes, Section 32 does not apply, and depreciation cannot be claimed.
4 When Can Depreciation Be Claimed?
Depreciation can be claimed only if: The property is used as a business asset.The income from the property is taxable under the head “Profits and Gains from Business or Profession” (Section 28).
For example:
If you own a commercial property and operate a business like a hotel, co-working space, or factory from that property, the property will be treated as a business asset. In such cases, you can claim depreciation as a business expense under Section 32.
5 Other Important Sections
Section 23: Defines the Annual Value of the property, which is the basis for calculating income from house property.
Section 25: Specifies non-deductible expenses, e.g., interest on unpaid taxes related to the property.
Example Calculation:
Scenario: You have rented out a commercial property for ₹2,40,000 per annum. You pay ₹20,000 as municipal taxes, and you have taken a loan on which you pay ₹1,00,000 as annual interest.
Gross Annual Value (GAV) = ₹2,40,000
Net Annual Value (NAV) = GAV – Municipal Taxes = ₹2,40,000 – ₹20,000 = ₹2,20,000
Standard Deduction (30%) = ₹2,20,000 × 30% = ₹66,000
Interest on Loan = ₹1,00,000
Taxable Income from House Property = NAV – Standard Deduction – Interest on Loan
=₹2,20,000−₹66,000−₹1,00,000=₹54,000
You cannot claim depreciation in this case since the property is not used for your business.
This explanation aligns with the provisions of the Income Tax Act. Let me know
My other business turnover has crossed Rs. 20 lac. Should I need to charge GST when I let out my commercial property.
Yes, since your overall business turnover has crossed the GST threshold limit of ₹20 lakh, you are required to charge GST on the rent received from letting out your commercial property. Here’s why and how:
GST Applicability on Rental Income:
Rental of Commercial Property:
Renting or leasing commercial property is treated as a supply of service under GST, as per Section 7 of the CGST Act, 2017. It is taxable under GST at 18% (9% CGST + 9% SGST for intra-state supply, or 18% IGST for inter-state supply). GST Registration Threshold:
The aggregate turnover threshold for GST registration is ₹20 lakh in most states (₹10 lakh in special category states).
Since your total business turnover (including rental income) exceeds ₹20 lakh, GST is applicable to your rental income.
Aggregate Turnover:
As per Section 2(6) of the CGST Act, aggregate turnover includes:
Taxable supplies
Exempt supplies
Export of goods/services
Inter-state supplies
Even if your rental income alone is below ₹20 lakh, it is included in the aggregate turnover for calculating the threshold.
When GST is Not Applicable:
Residential Property:
Renting of residential property for use as a residence is exempt from GST (Notification No. 12/2017-Central Tax (Rate)). GST Not Registered Yet:
If your aggregate turnover (including rental income) is below ₹20 lakh, GST would not apply.
Action Steps for You: Charge GST on Commercial Rent:
Add 18% GST to the rent invoice provided to your tenant. Raise a GST-Compliant Invoice:
Include details such as GSTIN, SAC code (997212 for renting commercial property), and the tax amount.
File GST Returns:
Declare the rental income in your GST returns (GSTR-1 and GSTR-3B).
Example:
If your monthly commercial rent is ₹50,000:
GST @18% = ₹50,000 × 18% = ₹9,000
Total Invoice Amount = ₹50,000 + ₹9,000 = ₹59,000
You must collect ₹59,000 from the tenant and remit the GST to the government.
