Depreciation

This query is : Resolved

Sachin Grover (Querist)
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16 December 2016 An assessee Co. Acquire a land on lease for business and constructed a building on it. Assessee claim lease rent for land and depreciation for building. Later on, assessee gave such building on rent. What should be the treatment for such rent and depreciation as per income tax??

C.A. Mayur J. Raiyani

C.A. Mayur J. Raiyani (Expert)
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17 December 2016 in my view you can continue claiming depreciation on building and claim lease rent also. However, rent received will be charged under the head Income From House property. If company have no other business income then loss of lease rent will be set of against income from hose property. Mind well income from renting will be parked under Income Form House Property if company has not rented it to its employee.

Sachin Grover

Sachin Grover (Querist)
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17 December 2016 U mean assesse can claim 30% adhoc deduction as well as depreciation regarding building i.e house property. Is this possible???

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 In the scenario where an assessee company acquires land on lease, constructs a building on it, and subsequently gives the building on rent, the treatment for rent and depreciation under income tax laws is as follows:

### Treatment of Rent Received

1. **Rental Income from Building:**
- The rent received from letting out the building is taxable under the head "Income from House Property" as per the Income Tax Act.
- The annual value of the building, which is the basis for computing taxable rent, is generally determined as the higher of the actual rent received or receivable, or the municipal valuation.

2. **Deductions Allowed:**
- **Standard Deduction:** A standard deduction of 30% of the net annual value (after deducting municipal taxes) is allowed under Section 24 of the Income Tax Act.
- **Municipal Taxes:** Actual municipal taxes paid during the year can be deducted from the annual value of the property.
- **Interest on Borrowed Capital:** If there is a loan taken for the construction or acquisition of the building, interest on such loan is deductible.

### Treatment of Depreciation

1. **Depreciation on Building:**
- Depreciation on the building can be claimed as per the rates specified under the Income Tax Act. The building is considered a tangible asset, and depreciation rates for such assets are prescribed.
- The depreciation is allowed based on the block of assets concept under Section 32 of the Income Tax Act. The applicable rate of depreciation depends on the type of building and its use.

### Ad-hoc Deduction (30%)

- The ad-hoc deduction of 30% you mentioned typically applies to the rental income from buildings used for residential purposes. This deduction is not directly related to depreciation but is a standard deduction allowed under Section 24 of the Income Tax Act for any property let out for residential purposes.
- For commercial buildings (including those used for business purposes), the deduction for repairs and maintenance expenses is allowed as per the actual expenditure incurred, and depreciation is claimed based on the actual cost of the building.

### Conclusion

- Yes, the assessee can claim both depreciation on the building and deductions related to the rental income, including standard deduction and municipal taxes.
- The ad-hoc deduction of 30% specifically applies to residential properties and not to commercial or business properties. For commercial properties, the deductions are typically based on actual expenses and depreciation as per the Income Tax Act.

It's important for the assessee to maintain proper documentation and adhere to the provisions of the Income Tax Act regarding the treatment of rental income and depreciation to ensure compliance with tax regulations.