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What Are the Tax Benefits of Buying a Commercial Property?

Blox Social
Posted on
Jan 17, 2023

Real estate is a sizable and rather lucrative part of any investor's portfolio. Investing in commercial real estate, in particular, can be quite rewarding if done right. Some of the greatest benefits of investing in commercial real estate include the following:

  • High demand and assured returns
  • Attractive and regular rental income
  • Low cost of maintenance or furnishing
  • High appreciation of property value

Investing in real estate can also bring you several tax benefits. Most people who buy residential properties understand that home loans come with tax relief on the repayment of both interest and principal amounts. So what are the tax benefits of investing in commercial property? Let's take a look.

How is rent from commercial property taxed?

Like residential properties, rentals from any commercial property you own are also taxed as an "income from house property". Only in a few cases where you provide office space or commercial space for rent and other business services (like co-working spaces) can the income be taxed as "other business income". GST may be applicable if your rental income from commercial property is over INR 20 lakh per annum.

Tax benefits of buying a commercial property

Standard Deduction: If you own a commercial property, you can claim a standard deduction of 30% of the taxable income for repairs and renovations made to the premises. This flat rate can be claimed irrespective of the amount spent.

Tax benefits on loans for buying commercial property

Most investors avail of loans to buy commercial properties. Unlike home loans for residential property, you cannot avail of any tax breaks or benefits on the repayment of the principal amount. The interest repayment, however, brings tax benefits. You can claim deductions on 100% of the interest repaid on the loan you have availed to buy the commercial property. This deduction can also be availed on loans taken for construction work on commercial properties. The interest on such a loan taken before possession can be claimed in five equal instalments after the completion. In addition, any prepayment or processing charge you may have paid for the application and sanctioning of such a loan can also get you tax deductions. This deduction may be claimed from the year of completion, i.e. the year you take possession of your commercial property.

Things to remember when investing in commercial real estate

  • If you occupy the commercial property and run a business from the premises, you can claim a 10% depreciation rate on the asset value as per the Income Tax Act.

  • Tax deduction on the interest paid on loans for buying or building commercial property can be availed from the year you gain possession. This includes any loans taken from friends or relatives.

  • If you have rented out the commercial property, you can claim the entire interest against rental income (after the standard deduction), but any loss under "income from house property" up to INR 2 lakhs can be set off against other incomes. This can also be carried forward for up to 8 years.

The Blox Advantage

Blox offers listings of RERA-verified projects directly from some of the top developers in Mumbai. It is your one-stop destination for finding commercial properties in some of the upcoming neighbourhoods of Mumbai and the city's suburbs. Your blox relationship manager will help you find just the kind of commercial space you are looking for,, and contact the developers directly – all at zero brokerage or additional charges. Invest in Mumbai's teeming commercial real estate in just a few clicks. 

Real Estate