Income from lease rental of commercial properties
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
12 February 2013
Under which head income from lease rental of commercial properties is taxable ?
Is any expenses in relation to such income is deductible ?
Is any expenses in relation to such income is deductible ?
12 February 2013
the provision of taxability of house property will applied to this case..
Querist : Anonymous
Querist :
Anonymous
(Querist)
12 February 2013
That means no expenses in relation to such income is allowed apart from standard deduction @30% u/s 24.
30 July 2024
The taxation of income from lease rentals of commercial properties is governed by the Income Tax Act, 1961, and it falls under the following category:
### **Head of Taxation**
**Income from Lease Rental of Commercial Properties:**
- **Head of Income:** Income from lease rentals of commercial properties is classified under **“Income from House Property”** as per the Income Tax Act, 1961. This applies whether the property is residential or commercial, as long as the income is derived from letting out the property.
### **Expenses and Deductions**
**Allowable Deductions:**
1. **Municipal Taxes Paid:**
- Municipal taxes paid by the property owner are deductible from the Gross Annual Value (GAV) to arrive at the Net Annual Value (NAV). This is applicable to both residential and commercial properties.
2. **Standard Deduction:**
- A standard deduction of **30%** of the Net Annual Value (NAV) is allowed under Section 24(a) of the Income Tax Act. This deduction is for repairs and maintenance of the property.
3. **Interest on Borrowed Capital:**
- Under Section 24(b), you can also claim a deduction for interest on borrowed capital if the loan was taken for the purpose of acquiring, constructing, or repairing the property.
**Expenses Not Deductible:**
1. **Direct Expenses:**
- Expenses directly related to the earning of rental income, such as property management fees, repairs, and maintenance costs, are not separately deductible under the head “Income from House Property.” Instead, a standard deduction of 30% of the NAV is provided to cover these expenses.
2. **Administrative Costs:**
- Administrative costs and other expenses related to managing the property are not separately allowed.
3. **Depreciation:**
- Depreciation on the property is not allowed as a deduction under this head. The standard deduction of 30% is intended to cover depreciation as well as other repairs and maintenance.
### **Summary**
1. **Taxable Head:** Income from lease rental of commercial properties is taxable under the head **“Income from House Property.”**
2. **Deductible Expenses:**
- Municipal taxes paid can be deducted from the Gross Annual Value.
- A standard deduction of 30% of the Net Annual Value is allowed.
- Interest on borrowed capital for acquisition, construction, or repair is also deductible.
3. **Non-Deductible Expenses:**
- Other direct expenses related to the property are not deductible separately but are covered under the 30% standard deduction.
### **Example Calculation**
1. **Gross Annual Value (GAV):** Suppose the annual rent received is ₹5L, and the fair market value is ₹5,50,000. If the GAV is ₹5L and municipal taxes paid are ₹20K:
- **Net Annual Value (NAV):** ₹5L - ₹20K = ₹4.80L
2. **Standard Deduction:**
- **30% of NAV:** 30% of ₹4.80L = ₹1.44L
3. **Taxable Income:**
- **Taxable Income from House Property:** ₹4.80L - ₹1.44L = ₹3.36L
This calculation provides a simplified view, and actual tax calculations should account for all relevant details. For personalized tax advice and compliance, consulting a tax professional or accountant is advisable.
### **Head of Taxation**
**Income from Lease Rental of Commercial Properties:**
- **Head of Income:** Income from lease rentals of commercial properties is classified under **“Income from House Property”** as per the Income Tax Act, 1961. This applies whether the property is residential or commercial, as long as the income is derived from letting out the property.
### **Expenses and Deductions**
**Allowable Deductions:**
1. **Municipal Taxes Paid:**
- Municipal taxes paid by the property owner are deductible from the Gross Annual Value (GAV) to arrive at the Net Annual Value (NAV). This is applicable to both residential and commercial properties.
2. **Standard Deduction:**
- A standard deduction of **30%** of the Net Annual Value (NAV) is allowed under Section 24(a) of the Income Tax Act. This deduction is for repairs and maintenance of the property.
3. **Interest on Borrowed Capital:**
- Under Section 24(b), you can also claim a deduction for interest on borrowed capital if the loan was taken for the purpose of acquiring, constructing, or repairing the property.
**Expenses Not Deductible:**
1. **Direct Expenses:**
- Expenses directly related to the earning of rental income, such as property management fees, repairs, and maintenance costs, are not separately deductible under the head “Income from House Property.” Instead, a standard deduction of 30% of the NAV is provided to cover these expenses.
2. **Administrative Costs:**
- Administrative costs and other expenses related to managing the property are not separately allowed.
3. **Depreciation:**
- Depreciation on the property is not allowed as a deduction under this head. The standard deduction of 30% is intended to cover depreciation as well as other repairs and maintenance.
### **Summary**
1. **Taxable Head:** Income from lease rental of commercial properties is taxable under the head **“Income from House Property.”**
2. **Deductible Expenses:**
- Municipal taxes paid can be deducted from the Gross Annual Value.
- A standard deduction of 30% of the Net Annual Value is allowed.
- Interest on borrowed capital for acquisition, construction, or repair is also deductible.
3. **Non-Deductible Expenses:**
- Other direct expenses related to the property are not deductible separately but are covered under the 30% standard deduction.
### **Example Calculation**
1. **Gross Annual Value (GAV):** Suppose the annual rent received is ₹5L, and the fair market value is ₹5,50,000. If the GAV is ₹5L and municipal taxes paid are ₹20K:
- **Net Annual Value (NAV):** ₹5L - ₹20K = ₹4.80L
2. **Standard Deduction:**
- **30% of NAV:** 30% of ₹4.80L = ₹1.44L
3. **Taxable Income:**
- **Taxable Income from House Property:** ₹4.80L - ₹1.44L = ₹3.36L
This calculation provides a simplified view, and actual tax calculations should account for all relevant details. For personalized tax advice and compliance, consulting a tax professional or accountant is advisable.
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