Tax Benefits & Deductions for Commercial Real Estate Investors

December 8, 2024

Noida is becoming a key hub for commercial real estate in the NCR region. Investors have high potential returns on sectors like office spaces and retail investment. Property prices have had an upward trend for commercial projects in Noida is the past few years due to strategic location, Noida’s proximity to Delhi and the upcoming Jawar International Airport make it an ideal business destination, resulting in many upcoming commercial real estate developments. The demand for space and hybrid work properties is increasing as flexible workspaces are expected to grow in the coming future.

Real estate investment offers tax advantages, allowing investors to maximize their returns and savings. Commercial real estate investor should understand the tax deductions available to maximize their profitability.

1. Interest On Mortgage

Under section 80C Investors who borrow money to finance their investment in commercial real estate like retail spaces in Noida can deduct interest payments on the principal repayment. The maximum allowable deduction under this clause is Rs 1.5 Lakhs annually. This is allowed for properties held for business or those that are let out.

2. Depreciation

Investors of commercial properties can deduct the cost of where tear obsolescence incurred for the maintenance costs. Commercial properties have a depreciation period of 39 years during which they can claim depreciation. Under the Income Tax Act, the depreciation rates for commercial properties used for businesses can be depreciated at a rate of 5% to 10% annually. The depreciation can be claimed only on the building by excluding the land.

3. Repairs and Maintenance

All expenses for property repairs, maintenance, and improvements are eligible for deduction. The cost of fixing plumbing, electrical work, painting, and other necessary. Structural repairs can be claimed for deduction as per Tax regulations, maintaining a record of all these repairs is necessary to allow for deductions.

4. Property Management

The fees paid to property management services for the management of the property can be deductible for taxes. The property management services include tenant screening, property maintenance and rent collection. The charges paid towards these services are tax deductible.

5. Standard Deduction On Rental Income

The Income tax allows a standard deduction of 30% on rental income which means that 70% of the rental income is taxed.

6. Municipal Taxes

If the property generates rental income, then the municipal taxes paid on the property are deductible. Taxes are deductible when paid by the owner of the property, not the tenant.

7. Exemption On Capital Gains

Capital gains tax applies when a commercial real estate property is sold at a profit. The tax can be reduced by investing the proceeds into another property or specific bonds issued by the NHAI or REC. For long term capital gains the liability can be reduced by indexing the property’s cost for inflation.

These are important means by which real estate investors can save their tax liabilities.