Income Tax

Tax on Rental Income from Commercial Property: Shops, Offices & Warehouses

CA Nikhil Gupta·June 2026·7 min readHouse Property

Reviewed by CA Nikhil Gupta · Last reviewed 17 June 2026

Renting out a shop, office space, or warehouse comes with a layer of complexity residential landlords don't face: GST registration thresholds, a choice between 'House Property' and 'Business Income' classification, and TDS obligations that kick in at much lower amounts than for residential rent. Here's how commercial rental income is actually taxed.

Income Tax Classification: House Property vs Business Income

The first question for any commercial property owner is: under which head is the rental income taxed? This depends primarily on the nature of the activity:

Scenario	Head of Income
You simply let out a shop/office/warehouse you own, receiving rent without providing significant additional services	Income from House Property
You operate a business of letting out properties with substantial additional services (e.g., a managed co-working space, serviced offices with staffing, security, maintenance bundled in as a core service offering)	Profits and Gains of Business or Profession

This distinction matters because the computation, deductions, and set-off rules differ significantly between the two heads.

Computation Under "Income from House Property"

If classified as house property income, the computation follows the standard formula:

Gross Annual Value = Actual rent received/receivable (or higher of municipal value/fair rent/standard rent if the property is vacant for part of the year, subject to specific rules for let-out properties)
Less: Municipal taxes paid by the owner
= Net Annual Value
Less: Standard deduction @ 30% of Net Annual Value
Less: Interest on loan taken to acquire/construct/repair the commercial property (no cap, since it's not self-occupied)
= Income from House Property (commercial)

No deduction for actual expenses beyond the 30% standard deduction. Unlike business income, where you can deduct actual expenses (repairs, insurance, depreciation, etc.) individually, house property income allows only the flat 30% standard deduction (plus municipal taxes and home loan interest) - actual maintenance costs, society charges, etc., generally cannot be separately deducted.

Computation Under "Business Income"

If the letting activity is classified as a business (substantial services provided), the income is computed as per normal business income rules - actual rental receipts less actual expenses incurred (maintenance, staff costs, depreciation on the property and furnishings, etc.), which can sometimes result in a more favorable computation if expenses are high, but also brings the income within the ambit of tax audit requirements (Section 44AB) if turnover/receipts exceed prescribed thresholds.

GST on Commercial Rent

This is where commercial property differs sharply from residential property:

Property Type	GST Treatment
Residential property let out for residential use	Generally exempt from GST
Commercial property (shops, offices, warehouses) let out for business/commercial use	Taxable under GST (typically at 18%) if the landlord's aggregate turnover (including rental income and any other taxable supplies) exceeds the GST registration threshold (₹20 lakh for most states, ₹10 lakh for certain special category states)

TDS on Commercial Rent Paid by Tenants

Tenant Type	TDS Section	Threshold	Rate
Individual/HUF not subject to tax audit, paying rent for any property (residential or commercial)	Section 194-IB	Rent exceeding ₹50,000 per month	2%
Other persons (companies, firms, individuals/HUFs subject to tax audit) paying rent for land/building/furniture	Section 194-I	Rent for a month or part of a month exceeding ₹50,000 (Finance Act 2025 threshold, effective 1 April 2025; threshold subject to periodic revision)	2% for plant & machinery, 10% for land/building/furniture (rates subject to revision)

For commercial tenants who are businesses (companies, firms, or individuals/HUFs subject to tax audit), TDS under Section 194-I applies at the same ₹50,000-per-month threshold (Finance Act 2025, effective 1 April 2025) as the ₹50,000/month threshold under 194-IB that applies to non-audit individual/HUF tenants — the thresholds were aligned by this amendment. Commercial landlords should track TDS credit reflected in Form 26AS/AIS from multiple tenant types.

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Own residential property too? See how the rules differ.Compare commercial property taxation with the standard house property rules for residential rentals.

House Property Tax Guide

2026 current-law quick reference

Finin2min answer: Rental income from a shop/office is commonly house-property income when the taxpayer is owner and merely lets the premises; business treatment can arise where commercial exploitation/services are inseparable and facts support it.

2026 law transition: FY 2025–26 / AY 2026–27 remains under the Income-tax Act, 1961. Income of the tax year beginning 1 April 2026 is governed by the Income-tax Act, 2025 and the Income-tax Rules, 2026. Use the Department’s official comparison/transition tools before carrying an old section or form number into a post-1-April-2026 transaction.

What changes the answer?

What to check	What to do	Common mistake to avoid
Core classification	Rental income from a shop/office is commonly house-property income when the taxpayer is owner and merely lets the premises; business treatment can arise where commercial exploitation/services are inseparable and facts support it.	Do not decide from the label used on an invoice, agreement or bank narration alone.
Edge case	Income-tax head and GST registration/tax are separate tests. Tenant TDS is also only a tax credit, not a reduction of gross rent.	Recompute when the fact pattern crosses this boundary.
Evidence	Reconcile the documents below to the tax/regulatory return before filing.	A correct legal rule with an unreconciled evidence trail can still fail in assessment or audit.
Effective date	Apply the law/form/rate for the actual transaction, tax year or proceeding date.	Do not mix FY 2025–26/AY 2026–27 legacy references with post-1-April-2026 forms.

Worked practical example

An owner lets a bare shop for ₹80,000/month with no material services. Start with house-property analysis, then separately test GST and tenant TDS.

Evidence checklist

ownership/title
lease
municipal taxes
interest certificate
tenant TDS/GST records

Primary-source checks: Income Tax Department current law/transition · Income Tax e-Filing Portal

How to use this: This current-law summary reflects the latest position. Where it conflicts with an older rate, threshold, form or section reference elsewhere on the page, rely on the current, dated primary source above.

Frequently Asked Questions

I own a single shop that I rent out to a retailer, and I don't provide any services beyond the bare premises. Do I need to register for GST? ▼

GST registration is required if your aggregate turnover (which includes this rental income plus any other taxable supplies you make, across all your business activities) exceeds the applicable threshold (₹20 lakh for most states, ₹10 lakh for certain special category states) in a financial year. If your total rental income from this shop (and any other taxable income) is below this threshold, you would not be required to register for GST, and the rent would not attract GST. If you cross the threshold, GST registration and charging GST on the commercial rent (typically at 18%) would become mandatory.

My tenant (a private company) pays me ₹25,000 per month rent for my office space. Will TDS be deducted, and at what rate? ▼

Yes. Since the tenant is a company (not an individual/HUF outside tax audit), TDS under Section 194-I applies if rent for a month or part of a month exceeds ₹50,000 (the current Finance Act 2025 threshold, effective 1 April 2025; the older ₹2,40,000/year figure no longer applies) — and ₹25,000/month clearly exceeds this. TDS would be deducted at the rate applicable to rent for land/building (commonly 10%, subject to the rates in force), and you would see this reflected as TDS credit in your Form 26AS/AIS, which you can claim against your tax liability when filing your ITR.

Can I claim depreciation on my commercial property if the rental income is taxed as 'Income from House Property'? ▼

No. Under the 'Income from House Property' head, depreciation on the building itself is not a separately allowable deduction - the flat 30% standard deduction on Net Annual Value is meant to broadly cover repairs, maintenance, and similar costs (including an implicit allowance for wear and tear), and no additional depreciation claim is permitted. Depreciation on the property as a specific deduction is relevant only if the rental activity is classified as a business (Profits and Gains of Business or Profession), where the asset is part of the business's block of assets eligible for depreciation under Section 32.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: Income Tax
Official starting point: www.incometax.gov.in

Page source links

The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.

Primary sources & related provisions

Statutory provisions referenced in this guide:

Section 32 - Income-tax Act