Commercial Property Tax: A Complete Overview

Taxation is an important aspect and duty of every taxpayer in India, which is being used for development purposes. The tax is levied on a range of things, such as goods, services, and even properties. In order to make taxation hassle-free for the citizens, the Income Tax Authority of India gives them the option to pay it online and offline. However, in order to pay the tax in respect to the right section, the property tax is classified into residential and commercial property taxes. Both the taxes can be paid through the portal of the Income Tax Department and their offline modes.

The commercial property tax is another important taxation that needs to be paid by the taxpayer in the stipulated period. Let’s take you through the commercial property tax, its definition, modes of payment, and other information.

What is Commercial Property Tax?

The tax on real estate used for business purposes that is paid by the owner to the local authorities, such as the local municipality, is known as the commercial property tax. It covers both the assets a person owns and the property they lease to others in order to operate a business, commercial endeavour, or industry.

In India, the basis for commercial property taxes is “real property.” Municipalities use the revenue from all these taxes to fund the construction of roads, schools, and public amenities.

Commercial Property Goods and Services Tax (GST)

In situations where a property is rented out as a commercial property and the income generated from that property is ₹ 20 lakhs or more in a year, GST will automatically become applicable on that property. In this situation, about 18% of the total annual income will need to be paid as Goods and Services Tax (GST). 

How to Calculate Commercial Property Tax?

Every state and municipality has their own set of rules to calculate commercial property tax. So, it is better to visit the sites of all the municipalities or states before doing the calculations. Instead of that, here are some pointers that could help you understand how the authorities calculate commercial property tax. The tax calculation is based upon the following factors:

• Location in which the property is located.
• Property’s occupation state (self-occupied, vacant or rented).
• Commercial use of that property.
• Amenities are available on the property, such as a store, car parking, etc.
• Type of construction (multi-storied or single).
• Construction age of the land.
• Space index of the floor.
• The carpet area of that property. 

All the calculations for commercial property tax are based upon the factors mentioned above. The municipalities might use the below-mentioned methods for calculating the commercial property tax:

Unit Area Value System

Under this method of commercial property tax calculation, the carpet area per unit area or the build-up area is specified for the calculations. Based on the result, the expected returns are defined. Next, the commercial property tax is calculated based on the expected returns.  

Capital-Value Based System

Under this calculation method, the major contributing factor is the market value of the property for commercial use. First, the local government of the property will calculate the market value based on the type and location in which it is situated. This rate of the property every year. Next, the commercial property tax is calculated based on the market value of the property. 

Annual Rental Value System

This approach determines the tax based on the potential rent that landlords can generate. Depending on the rental income you would earn for the property, we determine the tax. The authorities will consider the property’s location, features, and size to determine its tax value.

Any one of these three approaches is used by every municipal government in India to determine how to compute commercial property taxes. You can quickly determine how much commercial tax you need to pay on the property by using a commercial property online calculator for your specific municipality. However, the taxing structure for the majority of real estate will be somewhat comparable to the regular property tax.

Steps for Commercial Property Tax Payment

There are two ways in which the commercial property tax can be paid—online and offline mode. The steps to pay the commercial property tax using both methods are mentioned below. 

Online Steps to Pay Commercial Property Tax 

To pay the commercial property tax online, follow the steps mentioned below.

Step 1: Visit the official portal of the municipal government in which the property is located.

Step 2: Choose the ‘Payment’ tab on the homepage and navigate according to the guidance of the portal.

Step 3: Choose the correct form that leads to commercial property tax payment. The form is either Form 4 or 5, as per the property tax. Also, the documents submitted along with the form determine whether any changes to the property in question have been made or not.  

Step 4: Next, select the assessment year (select the current year only after clearing all the backlog of commercial property tax payments). Most sites of the municipal corporation allow the taxpayers to clear their backlog and then process the commercial property tax payment for the current year. 

 Step 5: In the next section, enter the details of the property, such as an address, district, etc., and identification number. Attach all the required documents with the form to prove the changes and verification.

Step 6: After entering all the property details, click on the ‘Submit’ button and proceed to the commercial property tax payment section. 

Step 7: Using the payment method of your choice, complete the commercial property tax payment to clear all the dues.

Step 8: After the payment is made, the commercial property tax payment receipt/challan will be displayed. Download the challan for future reference.

Offline Steps to Pay Commercial Property Tax

If the online payment method is not available to you, you can use the offline payment method for commercial property tax by following the steps below:

Step 1: Visit the nearest office of the municipal corporation in that area. 

Step 2: Carry all the required documents and other details related to the property.

Step 3: Go to the counter and ask for the commercial property tax payment form.

Step 4: Fill in the form accurately with all the required information and attach the documents as mentioned.

Step 5: Complete the payment at the authorised counter.

Step 6: Submit the form, and the representative will give you the payment receipt.

What are the taxes applicable on commercial property?

Numbers of people want to know about the best commercial property tax process and that is why; they ask an expert. Basically, a payer of rent has to deduct income tax at source at 10% when the rent for a property exceeds Rs. 2.40 lakh per year from the AY 20-21 onwards. The TDS is simply applicable both to commercial and residential properties. There will be no GST on TDS.

Commercial Property that You Use for your Own Profession

You should know everything about rental income from commercial property under income tax. Suppose you are partly or completely making use of any commercial property with regard to doing business or professional affairs. Then, the share of any such properties, used for this purpose, will not be taxed in your own hands. Yet, you cannot make claims for any type of rent (notional) for such properties against the income from the business. For knowing more about deductions under income from business and profession, consider taking help from an expert. Yet, you will have the ability to make a claim for expenditure on repair and maintenance of properties against income from business. You may claim tota interest as expenditure for business minus any restrictions.

Suitably paying taxes is vital although you should have all documents and make sure that they are submitted suitably. Beginners should always take professional help in this regard. You should make a note of the fact that no deduction is there as per Section 80C for loans on commercial units, on repaying principal amounts. Those willing to check out income tax on rental income from commercial property in India should keep an eye on the documentation.

Investing in Commercial Property through REIT

You will have to remember that there are ample possibilities that you may not get a correct real estate agent from the industry. So, seeking other homeowners’ references may just troubleshoot a particular issue. And there are some of the benefits of human-to-human choice. And in this case, a reference to other homeowners is also a key to getting the right realtor. Basically, selling business property is not a very easy job but if you want to know about the right way, make sure that you get to know the details of tax payment.

When there is a question like how to sell the commercial property, you will have to make sure that you opt for the right kind of pointers. You will also have to know that you consider the budget and the ultimate professionals. Many people are willing to know what is commercial tax. A reference to GST will suffice since this is imposed on imported and domestically produced items alike.

Taxation of Profits on the Sale of Commercial Property

When you buy the commercial property or want to sell the property, you should ensure that you get to know the whole taxation documents. You can do commercial renters pay property tax by taking help from a tax-paying expert.

This gives the conclusion of the guide that sheds light on how to find the best realtor. In case you desire to know more about the tips and tweaks in searching for the best realtor, you can keep surveying. Or else, for more such guides, stay tuned right here. You can take the reference as well. Nowadays, before paying the commercial rent tax in India you will have to ensure that you get to know the details. An expert can assist you with the commercial tax payment.

How to Acquire Commercial Property Tax Challan?

As a taxpayer, you have to acquire a tax payment receipt after you have completed the payment for commercial property tax in offline or online mode. The receipt will automatically be downloaded if the payment is made through online mode. In the event the payment is made offline, you need to collect the tax receipt from the counter. 

Conclusion

The commercial property tax is similar to other property taxes applicable in India. However, the municipality in which the tax may be applicable varies sometimes. As a result, it is crucial to calculate the commercial property tax in advance, as the last moment calculations can lead to hassles. 

• Commercial Real Estate: Buyers Guide on Commercial Property
• Who Pays Property Tax and When?
• What is a Commercial Property?

Frequently Asked Questions (FAQ’s)