Bungalow : whether depreciable or non-depreciable asset

This query is : Resolved

Suraj (Querist)
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29 September 2021 Dear All,

I have following query:

Mr. A gifted 1.50 Crore to his younger son Mr B, aged 25 years, to start the business. From this sum, Mr B purchased a bungalow. He has started his business of renting this bungalow to prospective clients.
1) Will this bungalow be treated as depreciable asset or non-depreciable asset?
2) If this bungalow is treated as depreciable asset, then the depreciation rate would be 10%. i.e. Rs. 15 lakhs depreciation. However, he is expecting total rental of Rs. 10-11 lakhs p.a. After all expenses, he will be in loss. Will he be liable to tax audit due to loss?

Kindly guide me.
Regards,
Suraj

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 September 2021 1 Bunglow rented out for functions, it will be considered as commercial use and depreciation can be claimed.
2 Tax audit not applicable in such a case.

Suraj

Suraj (Querist)
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30 September 2021 Thank you Sir for your reply.
Bungalow is rented to tourists visiting that place.
Is it compulsory to claim depreciation if the bungalow is put to commercial use?
What if we do not consider this as business asset, though it is shown in balance sheet, and the depreciation is not claimed?
Kindly guide.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 September 2021 In case of commercial use depreciation is compulsory.
Consider it as residential house property no need to claim depreciation.

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Suraj

Suraj (Querist)
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02 October 2021 Thank you CA R Seetharaman Sir.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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03 October 2021 You are welcome.......

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