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Depreciation on residential property used for business!

Tax (Student) (165 Points)

23 March 2017

Facts of the case -

Assesse constructed a building for residential purposes in the year 2004

Cost of Land - Rs. 2.5 lacs (Purchased 10 years earlier)

Cost of Construction of Building - Rs. 24 lacs

Assesse started business in the year of 2014

Assessee started using that residential property for the purposes for business.

He used that residential property as an office.

Queries -

How to claim depreciation on same?

Should the depreciation be claimed from year AY 15-16 or from the year of construction?

At what rate should depreciation be claimed?

Depreciation should be claimed on whole property or proportionately on only the part used for business?

Depreciation should be claimed on the composite value of Land & Building?

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8 Replies

Studentsca (CA Practice ) (3577 Points)
Replied 23 March 2017

Depreciation is to be claimed at the rates provided as per Income Tax Act. Depreciation can be claimed from AY 15-16 only as the business was started in 2014. Depreciation to be claimed on the property proportionately for business use. Depreciation can be claimed only on building never on land value.

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Tax (Student) (165 Points)
Replied 23 March 2017

Originally posted by : Studentsca
	Depreciation is to be claimed at the rates provided as per Income Tax Act. Depreciation can be claimed from AY 15-16 only as the business was started in 2014. Depreciation to be claimed on the property proportionately for business use. Depreciation can be claimed only on building never on land value.

Depreciation to be claimed on Building used for business at 5% rate applicable to Residential Property?

Studentsca (CA Practice ) (3577 Points)
Replied 23 March 2017

Yes at that rate only as it is specified in the Income Tax Act.

Tax (Student) (165 Points)
Replied 23 March 2017

Originally posted by : Studentsca
	Yes at that rate only as it is specified in the Income Tax Act.

But the residential property is used for Business, so shouldn't the rate be 10% of depreciation?

Studentsca (CA Practice ) (3577 Points)
Replied 23 March 2017

If building is mainly uses for residential purpose then 5% however if mainly used for business then 10%.

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Tax (Student) (165 Points)
Replied 23 March 2017

Originally posted by : Studentsca
	If building is mainly uses for residential purpose then 5% however if mainly used for business then 10%.

Ok Sir.. Thanks a lot for the help!!!!

Final question and confirmation -

Depreciation will be provided from AY 15-16 (when the business started) as following -

Depreciation on Residential Use of Property (60% of the property used for residence) - 5%

Depreciation on Business Use of the Property (40% of the property used for business) - 10%

Studentsca (CA Practice ) (3577 Points)
Replied 23 March 2017

A building shall deemed to be used mainly for residential purpose if not less than 66.67% of built up area is used for residential purpose. Since in your case it is only 60% it does not qualify as residential building. Hence the rate of depreciation would be 10%.

svklsk@yahoo.com (2 Points)
Replied 25 November 2020

Residential Buildings are currently allowed 5% depreciation. Does this include co-op society buildings, exclusively for members. Society is functional since 2012/13 Builder has given Convayance.

I belive, currently, depreciation on residential buildings is allowed at 5%. 5% mandatory or optional upto 5% ?.

Say, if the total cost of a co-op housing complex is Rs.20 CR, even 1% depr. will wipe off not only annual surplus, if any, but also the balances in General Reserve A/c and Rep. & Maint. Fund a/c and other Fund A/c (the latter 2, contributed to by members, may show negative balances. Chs being a "not for profit" org, the annual surplus is negligible.

Please make me understand.

Regards.