Should you lease a shop, office space, or any commercial building, the income you get from it is taxable rather than merely passive. Understanding the treatment of rental income from commercial property under income tax can help you avoid penalties and possibly even save money.
Let’s simplify it for you.
Definitions of Commercial Rental Income
- Rent from stores, offices, warehouses, or industrial buildings.
- Lease income from commercial buildings
- Subletting a commercial property (should legal permission be granted)
- Commercial rent includes even leasing your house for business purposes, much as running an office.
The Income Tax Act regards all such income as “Income from House Property”.
How is commercial property tax-paid rental income handled?
- GDP (gross annual value)
Usually, this represents the annual total rent collected or receivable. - Less: Local Taxes Paid
Like property tax (only if paid by you, not the tenant) - NAV, net annual value:
GAV less municipal taxes - Less: thirty percent standard deduction
Allowed automatically under Section 24(a), for upkeep and repairs - Less: Home Loan Interest (should any exist)
Per Section 24(b), permitted without restriction for commercial property - Result: House Property’s Taxable Income
You pay tax on this level using your income tax slab.
As a matter of fact:
- Rent annually: ₹10,00,000
- Municipal tax: ₹50,000
- Interest on loan: ₹2,00,000
Taxable income = (₹10,00,000 – ₹50,000) – 30% standard deduction – ₹2,00,000 = ₹4,65,000 (taxable).
Important Tax Rules for Commercial Rent:
- Should your total rent surpass ₹20 lakh/year and you register under GST,
- TDS is applicable should the tenant be a business paying rent exceeding ₹2.4 lakh/year.
- TDS subtracted at 10% under Section 194-I
- Your Income Tax Return (ITR-2 or ITR-3) has to show commercial rent.
Are deductible claims possible?
Indeed, you are able legally to lower your tax obligation:
- 30% standard deduction—no bills required
- Loan interest without any upper limit
- Municipal taxes paid by you actually
- Depreciation shown under business income (in particular circumstances)
Advice for Those Owning Commercial Property
- Have a registered lease for rentals.
- Save bank statements or rent receipts as evidence.
- Request that renters send a TDS certificate (Form 16A).
- Track your GST obligations, if relevant.
- File your ITR properly to get deductions.
Last Thought
Though the law lets you claim deductions, rental income from commercial property under income tax is totally taxable. Smart planning will help you to reduce your taxes and still make consistent income from your property. Just remember to keep your records neat, file on schedule, and follow the policies.
