Investing in commercial property is always considered to be a better investment option as compared to residential property. Apart from offering good rentals, it also offers a healthy return on Investment. But, then just like residential property, you have to file tax on your commercial investment too. However, there are various types of taxes applicable to commercial property. Take a look:
Tax Paid on leased Commercial Property
If you give your commercial property on rent, the income coming from it is taxable. You have to file income tax under the head ‘Income from house property’ of the Income Tax Act. If in case, the property is sublet, then you have to file the tax under the head ‘Income from other sources’.
Deductions: There are various types of deductions that you can claim on the rental received on the commercial property. The first is a standard deduction which is at the rate of 30% and is available on the rental income. As per the Section 24(b) of the IT act, apart from the standard one, deductions can also be made on the interest paid on the loan amount used for property purchase, construction or repair. Even the prepayment charges and processing fees are also taxable. In case of under-construction property, deductions can be claimed only after the possession of the property and that too in five equivalent installments starting from the year.
Tax Paid on Commercial Property used for own Business
If you are using the commercial property for carrying out your own business, then it is not taxable. Also, you cannot claim any notional rent on the property against the income.
Deductions: In such cases, you can claim deductions on maintenance and repair of the property. Also, the claim can also be made as business expenditure. Beware, you cannot claim any deduction under section 80 (c) of the Income Tax Act.
Tax Paid on the Sale of Commercial Property
When you sell your commercial property to another person, then the profit earned via the sale of the property can be claimed as short term capital gains.
However, in the case of commercial property which is let out, the profit of sale can be termed as long term capital gains. You can save your taxes by investing in any residential property (Section 54 F) or bonds (Section 54EC) if the property is not sold for more than 24 months. And, if it sold within 24 months then the income will be taxed normally.