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Query regarding Depreciation on House Property if company is having only Rental Income

Priyanka (CA) (23 Points)

26 June 2021

Hi,

Pls advise in the following matter -

A co. is having only rental income from house property. The property is reflected in the balance sheet. Should we charge depreciation on the same as per companies act? and while filing ITR should we charge depreciation as per IT Act also?

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7 Replies

CMA Poornima Madhava (CMA) (13097 Points)
Replied 26 June 2021

For finalization of accounts, you may use the rate of depreciation as per Companies Act and for the purpose of ITR, the rate as per IT Act.

SUSHANT BIDAYE (578 Points)
Replied 26 June 2021

For the companies act charging depreciation is correct,

but for tax purposes no depreciation is allowed if the income is assessed under house property income.

Priyanka (CA) (23 Points)
Replied 26 June 2021

Thanks Sushant..But while preparing computation of income the depareciation as per companies act need to be added back?

SUSHANT BIDAYE (578 Points)
Replied 26 June 2021

Yes sure. your business income and house property will be considered under separate heads and accordingly rent income will be subtracted for computation of business income too.

veerendar singh (tax consultant) (3301 Points)
Replied 26 June 2021

In this case rental income will not be taxed under head house property.
it will be a business income and computation will be as per pgbp provisions.
you can claim depreciation as per s. 32

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CA Raj Doshi (Practising CA) (8723 Points)
Replied 27 June 2021

In case of Rayala Corporation Pvt Ltd (SC), it was held that rental income from house property shall be taxable under the head income from business profession if it is the object of the company of doing renting business.

Prathik Lenin (Chartered Accountant) (60 Points)
Replied 28 June 2021

The first aspect which we must determine is under which head of income, the particular property is chargeable. The provision for depreciation can be ONLY allowed if the income generated from the asset is classified under "profits and gains from business or profession."

If the companies object is in line with the business of renting properties or like, then the income can be safely parked under this head. Then depreciation must be charged in the profit and loss account and like wise in ITR too.

On the contrary, if the objects of the company has no nexus with the property income. Then the income must be classified under "Income from house property". In this case, depreciation may be charged under the companies act 2013. However, no depreciation can be charged under the Income tax act and ITR you will not be able to claim depreciation. Showing the asset in balance sheet is only incidental to the taxing provisions.

Hope I have clarified your query.