Tax Implications of Rental Income from Commercial Properties in India

Introduction

In India, property owners can earn a steady income from rentals by investing in commercial properties. However, a clear understanding of the ITR tax filing implications of earning rental income from commercial properties is essential. This article investigates the key duty contemplations that land owners should know while creating rental pay from business properties in India with e filing of income tax return.

What Exactly is Rental Income?

A wide range of properties, including residential, commercial, industrial, agricultural, and so on, can generate rental income. Notwithstanding, in this article, we will zero in on rental pay from business properties in particular.

Business properties are utilized for business or expert purposes, like workplaces, shops, distribution centers, plants, lodgings, and so on. Under the Income Tax Act of 1961, rental income from commercial properties is taxable under “Income from House Property.”

How Does Rental Income Get Taxed?

Rental revenue from commercial buildings is taxed as follows:

• The property’s gross annual value (GAV) is calculated by taking the greater of the actual rent received or receivable or the property’s municipal value or fair rent.
• Deductions from the GAV are permitted for municipal taxes paid by the owner and a standard deduction of 30% of the GAV for repairs and upkeep.
• Subtracting the deductions from the GAV yields the net annual value (NAV).
• Interest on borrowed money for purchasing or developing the property is deducted from the NAV up to a ceiling of Rs. 2 lakhs per year.
• The revenue from real estate is calculated by deducting the interest deduction from the NAV.
• The income from a residence is added to the owner’s total income and taxed at the applicable slab rates.

What are Some of the Unique Requirements for Commercial Rental Income?

In some circumstances, additional rules apply to rental revenue from commercial buildings. Among them are:

• Suppose the owner owns more than one commercial property, all self-occupied for business or professional reasons. In that case, only one may be classified as self-occupied, and its NAV is zero. The other properties will be considered rented, and their GAV will be calculated following standard procedures.
• If the owner owns a business property that is partially self-occupied and partly rented out, the GAV will be divided and taxed in proportion to the two components.
• If the owner owns an empty commercial property for a portion of the year, the GAV will be lowered correspondingly.
• If the owner gets rent arrears or unrealized rent from a prior year, the amount will be taxed in the year of receipt after a 30% deduction for repairs and maintenance.
• If the owner pays a brokerage or commission to find a renter for the property, that amount is deductible from rental revenue in the year of payment.

What are Some of the Advantages of Investing in Commercial Real Estate?

Investing in commercial buildings may provide several advantages to owners, such as:

• Rental revenue from commercial buildings may give owners a consistent and predictable income stream.
• Commercial properties may acquire value over time and provide owners with financial gains when sold.
• Commercial buildings may also provide tax advantages to their owners by providing deductions for interest on borrowed capital and depreciation on specific property assets.
• Commercial properties may also help owners diversify their portfolios and lower their risk exposure.

Conclusion

Understanding the e-filing of income tax returns implications of rental income from commercial properties is crucial for property owners in India. Property owners can ensure compliance with the tax laws while optimizing their tax liability by familiarizing themselves with the tax provisions, determining the annual value, and claiming eligible deductions. Seeking professional advice from chartered accountants or tax consultants specializing in real estate taxation can provide valuable guidance in navigating the complexities of tax regulations and ensure accurate reporting of rental income. Maintaining proper documentation is vital to substantiate income and deductions, providing hassle-free penalties for late filing of ITR experience for commercial property owners.