Investing in Buildings

Investing in Buildings

Investment in building is very important from point of view of tax planning. While a building in a big city is beyond the reach of most people because of its very high price, even today one can buy a building in smaller town.

Joint Ownership

If a building is brought by different co-owners, it is better that clear mention be made of the % of ownership in the building of different co-owners in the conveyance deed. Likewise , all co-owners must contribute funds towards the total cost of the building prorate, ie on the basis of their share in the property. Also, in order to avoid problems at a later stage, the co-owners must prepare an agreement whereby they can make a clear cut demarcation of the property by metes and bounds in the names of different members of the family.

Freehold or leasehold

To get a fair idea of the price of a property, it should first be ascertained whether the property is in a freehold area or a leasehold one. As a prudent investment, the property should be in a freehold area, so that there is no problem while selling the property to various government agencies like Delhi Development Authority, Pune Development Authority, Madras Development Authority and so on , at the time of selling the property.

Rental Income

Once more than one person making the investment in a building, they are entitled to receive the rent jointly. The rental income received is liable to income tax in the hands of the various owners in the ratio of their ownership in the property.

Taxes

All commercial buildings are exempted from wealth tax. Like wise, irrespective of the size of the residential house is completely exempted from wealth tax. The residential houses would be exempted from wealth tax if it is given on rent for a minimum period of 300 days in a financial year. Similarly the tax payer has a choice to claim exemption in respect of either one residential house property or a vacant plot of 500 sq.meters.

Factory Building

As in any other property there could be different co-owners of one factory building. If a factory. If a factory building is used for carrying on one’s own business or profession, it is entitled to depreciation. However, no depreciation is allowed on the cost of the building. Similarly, letting out of a factory building with plant and machinery on lease would again not be income from business or profession but income from other sources. This distinction should be understood very clearly, particularly from the point of view of tax aspects connected with losses in business and their carry forward. The factory building used for any purpose would be fully exempt from wealth tax.