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Using Residential Property for Commercial Purpose

It is a common practice to buy property in Pune, Mumbai or any other location for end usage or investment purposes. Nowadays, with new and more elaborate projects coming up in various parts of urban cities, many people tend to buy houses and flats more than what they actually intend to use as a means of future investment or for future planning. However, the trend has also set in of using this extra property for commercial purposes like setting up an office, clinic or running some kind of business from the same premises. It is more often the case with people who are doctors, chartered accountants, lawyers or other jobs which are majorly work from home professions or which involve meeting clients and doing deals majorly from homes. This practice, however insignificant it might seem, is illegal.

 

  • As per the rules of the Government, residential properties cannot be used for commercial purposes or else they will be treated as commercial properties and will attract higher rates of taxes like the property tax, water and electricity surcharge and other taxes in accordance with the commercial property laws. As a result, if a rented residential property is being used for commercial purposes or even a self owned one, the owner will have to pay a higher tax depending on the rules of the state government and will have to obtain prior permission for the same.

 

  • A residential property or house in Mumbai, Delhi or any other particular location of your choice can be used for commercial purposes in cases where the particular state allows it but after the permission of the residential society and the complex owners. This might also require permission from the local municipal body which will decide whether or not to allow such an establishment and whether all the relevant permissions have been got from the locals and the residents. Some states allow a part of the residential property to be used for commercial purposes and accordingly the taxes are levied and the surcharges come into play. However, in all cases, approval and permission of the residential society and the real estate developer is required.

 

  • There are set rules and procedures for converting residential properties into commercial ones and for that you have to separately apply to the municipal body as per the requirement, the size or area of the property being converted, the purpose of use and the resources it would require. This would in turn attract higher property taxes and water and electricity cess as per the prevailing norms and the owner will have to bear it. So in cases where the property has been rented, the owner can object to the conversion and setting up of commercial practices on account that he will have to pay higher tax rates without moving up the rent.

Also Read: Developers hoping for property boost from GST regime

However, certain practices do not count as setting up a commercial establishment like running yoga or meditation classes, dance and music lessons, tuitions or any such activity. Everything which requires professional help will attract commercial property billings in case you plan to set it up in your residential complex.

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