Depreciation on leased/leasehold property or office unit

There is an office unit at a commercial building under lease for 60 years with an option to renew at the end of the lease expiry. The lessor only charges maintenance fees and minimal ground rent from the lessee. An individual having a proprietorship business intends to buy the office under lease for using it as office space. Now, approximate value of transaction including registry, stamp duty, lawyer and other fees is Rs. 60 lacs. Here are the questions -

Under which block of assets class office unit/space comes in depreciation table as per Income Tax regardless of it being a leasehold or freehold?
Can depreciation be claimed over leased property when the property is taken under name of the individual with the intention to use it for his business? How will the accounting entry be done in both the books of the individual and proprietorship business if that is the case?
Can depreciation be claimed over leased property if the property is taken under the name of the proprietorship business?
Is depreciation allowed in general for leased property?
Can depreciation be claimed on furnishing the office like making renovations, adding furniture, etc.?

Note - The lessee makes payment of property tax, in fact the property has to be mutated with the name of the lessee after possession.

Great questions, Gaurav! Let's break down the depreciation treatment on leased/leasehold office property from a tax perspective and accounting standpoint in India:

1. Which block of asset class does office unit/space fall under for depreciation as per Income Tax?

Office building or unit (including leasehold) falls under Block of Assets: "Building (other than factory building)" under Section 32 of the Income Tax Act.
The depreciation rate is generally 10% (written down value method) for buildings other than factory buildings.

2. Can depreciation be claimed on leased property when property is in individual’s name for business use?

If the leasehold property is purchased (i.e., leasehold interest is acquired), the leasehold interest is considered an asset.
Depreciation can be claimed on the leasehold interest under the block of assets, provided the lease is for a term of 30 years or more (which is the case here — 60 years).
Since the property is in the individual’s name and used for business, depreciation on the leasehold asset can be claimed.

Accounting entries in books of individual/proprietorship:

On purchase:

Leasehold Property (Asset) A/c Dr. 60,00,000 To Bank/Cash A/c 60,00,000
For depreciation:

Depreciation Expense A/c Dr. To Accumulated Depreciation A/c (or Leasehold Property A/c)

(Calculate depreciation @ 10% WDV on leasehold property value)

3. Can depreciation be claimed if property is taken under the name of the proprietorship business?

Proprietorship business is not a separate legal entity; it's the individual himself.
So, treatment is the same as the property being owned by the individual.
Depreciation can be claimed on leasehold property acquired for business use, irrespective of whether the name is in the individual’s name or the proprietorship’s name.

4. Is depreciation allowed in general for leased property?

No depreciation is allowed on leased property if the business is only leasing (taking on rent) and not purchasing the leasehold interest.
But if the leasehold interest is acquired for 30 years or more, the leasehold interest is considered an asset, and depreciation can be claimed.
In this case, since lease is for 60 years with renewal option, it's considered a depreciable asset.

5. Can depreciation be claimed on furnishing, renovations, furniture?

Yes.
These are considered separate assets (furniture, fittings, renovations) and fall under different blocks of assets.
For example:
- Furniture and fittings: 10% depreciation (WDV method)
- Renovations (if capitalized): treated as part of building or as separate asset and depreciated accordingly.
Capital expenditure incurred on improvements can be capitalized and depreciated.

Additional Notes:

Since lessee pays property tax and property is mutated in lessee’s name, the leasehold interest is treated like an asset for depreciation.
Intangible lease rights (if lease is less than 30 years) usually don’t attract depreciation.

Summary:

Question	Answer
Asset block for office space	Building (other than factory building) — 10% WDV
Depreciation on leasehold	Allowed if lease term ≥ 30 years (Yes, here 60 years)
Ownership by individual or prop	Same treatment; depreciation allowed
Depreciation on leased property	Allowed only if leasehold interest purchased for long term (≥30 years), not on rent
Depreciation on furniture/renovations	Yes, separate asset class and depreciable