I puchased a 1 BHK flat costing 14 lakhs jointly with my wife( roughly 50% contribution by each of us) in a housing society and then converted into commercial use with official sanction from the local authorities and state laws.This was purchased with our savings and there is no loan on it. My wife is running a business over there. We also purchased a 3bhk flat in another society and living in it. We have house loan on it. Now how to treat this 1 BHK flat in IT return - will it be a building assest for business of 7 lakhs in my wife's ITR and a house property in my IT return with deemed rental income though i do not receive any rent from ny wife's business income. My wife will get depreciation of asset as per the rule. Alternatively we can show this flat as the self occupied and show the 3 BHK flat empty with deemed rental income and the EMI payment will make it a loss making house property. What will be legally correct. The 1BHK flat is treated as commercial one by the local minicipal council as well as electricity dept and we are making the tax and electricity payment at commercial rates
1 BHK flat will be treated as commercial property in the ITR and you can claim deprecation on it as it is used for the purpose of business by your wife.
3BHK flat will be treated as self-occupied and interest on loan upto Rs. 2 lacs will be allowed as loss.
Dear Sir,
Hope you are doing well !!
Yes, 1BHK flat will be treated as commercial and you can claim deprecation on it.
For 3BHK flat-You can claim a deduction of up to Rs.2 lakhs on you home loan interest as it will be treated as self occupied property.
THIS 1BHK flat now being treated as commercial property was bought as a booking which was done in FY 17-18. 80% money was spent in that financial year and then the posession was given in F Y 18-19. So depreciation will start from FY 18-19(AY 19-20) . The asset will be added in Balance shhet in AY 18-19(FY 17-18) or in AY 19-20 (FY 18-19). How will the asset creation will match with the bank expense,
Depreciation will be charged on the asset from the day when it was converted into commercial property and you started your business.
You can justify the bank expense and assets creation by saying that earlier it was personal asset and then it was used for business.
Many a times personal asset are converted into business asset.
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Thank you
Hi,
You need to show 1 BHK property as your wife's business asset. 3bhk will be self occupied. You also need to show deemed rent from 1bhk. Or alternatively, you can actually take rent from your wife so that she can also claim the rent as business expenses.
Wife can claim depreciation as well as interest paid on it as business expenses.
The asset will be created in b/s during FY 2017-18 as capital work in progress and in FY 2018-19 the asset will be shown as completed and you can claim depreciation from FY 2018-19.
The asset will be created in b/s during FY 2017-18 as capital work in progress (for 80% amount) and in FY 2018-19 the asset will be shown as completed (for 100% amount) and you can claim depreciation from FY 2018-19.
- Asset creation in the books of accounts is not linked to payment made. In F.Y. 2017-18, you can show the payment made under the head Advances and in the F.Y. 2018-19, you can capitalize the Assets adjusting the advances made and claim the depreciation from the F.Y. 2018-19.
You can claim the depreciation from FY 2018-19 after capitalize the assets.
Assets creation is not linked to bank expenses.