Every individual dreams of having a place where he can live his life in his comfort, and this dream comes true when he owns a house. Although owning a house is easier said than done. It sometimes takes a person’s life to build a home for himself and his family. When this dream is achieved people again buy property, not to live but for investment purposes. Even in this digital era, property investment is still one of the best options. Commercial property is one such amazing investment and still, it is tough to find a better investment alternative than commercial property loan tax benefit.

When someone buys property, he has to pay some tax on it. However, there are some options. which can help you get the property tax-free. Such property are considered an outcome of smart business decisions, and hence you can get commercial property loans to leverage the benefits of property.

What is a commercial property loan?

Now, you also want to take commercial property loan tax benefits, but before that, you need to learn more about commercial property loans. It is a credit facility that allows lenders to buy property against commercial property. Commercial property is a type of property where the buyer can run his commercial activities or give it on rent for commercial purposes. 

Commercial properties are generally more expensive than residential properties, but that’s not an issue as you can take a commercial property loan. As an alternative option to get the commercial property loan tax benefit, you can mortgage already-owned commercial property to avail the income tax benefit on commercial property loan.

How does a loan on commercial property work?

You might now be wondering how commercial property loan tax benefit actually works. In simple words, commercial property is a type of mortgage loan secured with commercial property and not on residential property. You can get funding for all types of expenses depending on the market value of your commercial real estate. The expenses can be for higher education, family wedding, debt consolidation or for expansion of your business. 

There are hundreds of loan providers giving loans from lakhs to crores which is based on borrowers at affordable mortgage rates of interest. This loan can be repaid in flexible tenure, it depends on the company you are taking the loan from. One thing that is important to notice here is that a loan for commercial property tax benefits can be repaid completely before the tenor ends. 

According to Statista, in the financial year 2022, the commercial loans value is around 86 trillion which is an increase from last year. The outstanding commercial loan value is increasing consistently since the financial year 2020.

This blog will help you better understand commercial property loan tax benefit. It will give an overview of the commercial shop loan available to buy a property. Here’s how you can leverage the tax benefit on loan for commercial property.

How to get commercial property loan tax benefit?

• Standard Deduction

When a person gets the benefits of a business loan to buy a commercial property, where you can claim a deduction that with standard deduction one can claim a flat rate of 30 per cent of your taxable income. A person can get the tax benefit for investing in equipment and technology, and building materials expenses including repairs and renovating the commercial property. It will help you with tax benefit. 

• Section 24

According to section 24 of the Income Tax Act 1961, commercial property owners can take loans for multiple reasons, like buying, constructing, repairing, or reconstructing and can avail of a tax deduction of Rs 2 lakh on the interest that one can repay through EMI. In the case of commercial property, there are chances that processing fees and prepayment fees can also be included under the interest component. 

However, you should know that taxable income from commercial property will be added to your annual income and it will be assessed and taxed as per the applicable income tax slabs. If the taxable income is negative, then the assessee can set off it against income from another head in the same year, the amount shouldn’t exceed. If the loss can not be set off or the amount of loss is more than Rs 2 lakh, then the loss will be carried forward for up to eight years and set off against future income. 

Under section 80C of the Income Tax Act 1961, there is no deduction allowed for the repayment of the principal amount of a commercial property. 

• Loan Interest Deduction

If you’re buying or constructing a building for commercial purposes, you can avail of the commercial shop loan and the interest you pay on your loan will be totally deductible. The fees related to obtaining a loan are not barred from any deduction. This can be claimed from the year during which you take possession after the construction is complete. You can claim a deduction of five equal instalments for interest paid over the year while taking possession of the commercial property.

If you are buying a building for commercial purposes or even constructing such a building, you are eligible for the interest you pay on your loan which is deductible. 

Using commercial property for your business

After getting a commercial property loan tax benefit, you are not eligible to claim any notional rental income deduction. It is possible to claim depreciation and interest paid on your loan and any other type of financing as tax deductions. As a businessman, a person can get business loans for a shop and claim all the maintenance costs and repairs completely. 

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Things to remember before buying a property

• Before buying a loan for commercial property tax benefit, you need to do in-depth research or a thorough analysis of the neighbourhood. This analysis will help you get a piece of detailed information about the location’s convenience, potential pitfalls, etc.

• Another thing to have in mind while looking for commercial property is that the property is accessible by essential services such as shops, hospitals, and schools. The commutation to such far places should also be easy to move. 

• You can enjoy the commercial property loan tax benefit, but you need to consider how long you want to stay in that particular place. However, it is also depends on how long you want to enjoy rental income or what the possibility of appreciation in the value of the property.

If you want to leverage the commercial property loan tax benefit, you need to take this huge decision which is exciting but a little worrying decision as well. There are plenty of income tax benefit on commercial property loan as commercial shop loans and buying property can help you against your taxes.

Conclusion

A commercial property loan can seriously help you build your wealth without the extra tax burden. This article helped you with commercial property loan tax benefits and how you can avail of the benefits of interest deduction, standard deduction, and potentially deductible fees. Using this article you can make important decisions and unlock commercial properties’ complete potential. You can also consult with an advisor who will guide you with your financial decisions and maximise your tax savings.

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