House property and depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 June 2013 Rental from godown is charged under house property, however if the same is also used for business than is it possible to claim depreciation on it.

CA Kapil Verma

CA Kapil Verma (Expert)
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24 June 2013 yes, if a part of property used for business you can claim depreciation for that part.

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Querist : Anonymous

Querist : Anonymous (Querist)

24 June 2013 this is not a personal expenditure Kapil Sir than why only partial allowance is allowed?
and what if the godown was used in past for self but now the same is given on rent.
the asessee plans to take depreciation this year onwards based on High COurt Decision of Yamaha Motors (I) Private Limited.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 Let's break down the treatment of rental income from a godown, depreciation on the property, and how changes in its usage affect tax deductions:

### **1. Rental Income and Depreciation**

**Rental Income from Godown:**
- If you are earning rental income from a godown, the income is generally classified under the head "Income from House Property" in your tax return.
- If the godown is used for business purposes, the rental income is taxable under “Income from House Property,” but expenses related to its maintenance, including depreciation, may be deductible under certain circumstances.

**Depreciation on Godown:**
- Depreciation on a godown, or any property used for business purposes, can be claimed under the head "Profit and Gains of Business or Profession" if it is used in business.
- If the godown is used for business, depreciation should ideally be claimed as a business expense. The income from renting it out is still classified as income from house property, but the depreciation claim will be adjusted based on its use.

### **2. Partial Allowance of Depreciation**

**Why Partial Allowance:**
- The partial allowance for depreciation arises from the fact that when a property is used for both personal and business purposes, or when it shifts usage, you may need to allocate the depreciation between the two uses.
- Depreciation is allowed based on actual use in business. For a godown that was used for personal purposes and is now rented out, depreciation can only be claimed based on the period it is used for business purposes.

### **3. Depreciation Claim for Property Used Partially for Business**

**When Godown Was Self-Occupied and Now Rented Out:**
- **Self-Occupied Period:** Depreciation cannot be claimed for a property used for self-occupancy; it is considered personal use and not eligible for depreciation.
- **Rental Period:** Once the property is rented out, it can be treated as a business asset if it is used for business purposes. Depreciation can then be claimed on it, starting from the year it is first used for business purposes.

**Yamaha Motors (I) Private Limited Case:**
- The decision in **Yamaha Motors (I) Private Limited** typically pertains to the treatment of depreciation and its eligibility. While this case might be relevant for determining depreciation eligibility, you should apply the principles in a way that reflects the actual use of the asset during the relevant periods.

### **4. Steps to Claim Depreciation**

1. **Determine the Use**: Establish the period during which the godown was used for business versus personal use.
2. **Calculate Depreciation**: For the period the godown was used for business, calculate depreciation based on the cost of the godown and applicable depreciation rates.
3. **Adjust for Rental Income**: When claiming depreciation, ensure it aligns with the income category. Rental income from the godown is still reported under "Income from House Property" even though depreciation for the business use might be reported under business income.
4. **Proper Documentation**: Maintain proper records and documentation to support the depreciation claim, showing how the godown was used and the corresponding business expenses.

### **Summary**

- **Depreciation**: Can be claimed for the period the godown is used for business purposes. If it was used for personal purposes before being rented out, depreciation cannot be claimed for those periods.
- **Rental Income**: Reported under “Income from House Property” but can be adjusted with business expenses if applicable.
- **Adjustments**: Make sure to appropriately allocate depreciation and rental income based on the usage and periods.

Consulting a tax advisor for detailed guidance tailored to your specific situation, including the implications of recent legal decisions, is advisable to ensure compliance and optimize tax benefits.