You can use your own building for business or can get a rented building for the purpose of your businesses. In both the cases you can claim expenses related to the building if it is used for your business.
Building taken on rent for business use
Suppose you have taken a building on rent for your business purpose. In this case what are the expenses you can claim as an income tax deduction is a question which every common man doing business may ask. Followings are the expenses which can be claimed as a deduction according to IT act;
If you are occupying the business as a tenant and the owner is charging you a monthly rent for using the building then such rent will be allowed as an tax deduction from your business profit. That means you can claim these expenses as tax deduction while paying tax at the year end.
You need to deduct TDS while making such payment to your tenant if the rent you are paying per year is more than the basic exemption limit prescribed for the year. For assessment year 2013-2014 the basic exemption limit is Rs. 2, 00,000. This deduction is compulsory and after such deduction you need to deposit the same with government of India every month and at the quarter end you need to submit a quarterly return to tax department.
Repair and Maintenance of the building
Any repair and maintenance you do for the building as a tenant will be allowed as income tax deduction if such repair is not capital in nature. That means only the current repair will be allowed as income tax deduction. Current repairs are those expenses which you spent every year for normal repair and maintenance. If your are spending something which will change the whole structure of the building like building another floor then it will be treated as capital expenditure not revenue expenditure.
Municipal taxes and other taxes related to building
As a tenant if you incurred certain expenditure for the building as land revenue, local rates and municipal taxed then such expenses will be allowed as business expenditure from your business profit. However to claim these expenses as a business expenses you need to pay it before the due date filling your income tax return (as per provision of section 43B of IT act).
Insurance premium for your building to ensure future loss or any other issues will be allowed as business expenditure.
Repair and Maintenance of Capital in nature
Any repair and maintenance expenditure incurred for the building which is capital in nature will not be allowed as an income tax deduction. But such expenses can be treated as the value of the building and depreciation can be claimed on such amount (explanation to section 32 of IT act).
Owned building used for business
If you are the owner of the building which is used for your business then you can not claim rent expenses as a deduction from your business profit as you can not pay rent to yourself.
So what are the expenses you can claim as income tax deduction if you own the same building in which your business activities are carried on? Following are the expenses which can be claimed as business expenditure.
Current repair and maintenance
Like we discussed above all the current repairs and maintenance expenditure incurred by you during the previous year can be claimed as tax deduction while calculating profit for income tax. You can not claim capital repair and maintenance expenses for the building as business expenditure. Such capital expenses will be treated a value of the building and depreciation can be claimed every year under section 32 of IT act.
Municipal taxes and other taxes
All the taxes including municipal taxes, land revenue and other taxes will be allowed as business expenses during the year if such expenses are paid before the due date of filling your income tax return.
Like in the case of taking a building on rent here also you can claim the expenses as business expenditure if you incurred any insurance premium for the building.
Now a normal question any one may ask, how to claim rent expenses incurred in relation to other assets like plant, machinery or furniture. Answer to this question is, you can claim such expenses as deduction under section 37 of IT act.
FAQ on tax deduction for Expenses relating to building used for business
I have a guest house which is owned by Mr. S. Reddy. The same guest house is used for my business as and when any guest arrives. I am paying rent of Rs.50, 000 per month to the landlord. Please let me know if I can claim this as my business expense.
Yes, you can claim the whole expense as your business expenditure. But you need to make sure that you deduct TDS from such rent. After deduction you need to deposit the same with the IT department.
We have taken an apartment having 25 flats in T. Nagar, Chennai. This apartment is used as our staff quarters and the rent of Rs. 2, 00,000 per month has been paid by us to the landlord. Can I claim the same expenses as my business expenditure?
Yes, you can claim the rent payment as your business expenses.
We have a partnership business. We are using one of the partners building for our business purpose. For this use we are making a payment of Rs. 15, 000 per month as rent. Can we claim this as our business expenditure?
Yes, you can claim it as your business expenditure if you have not taken this building as your business asset.