Updated on July 18, 2023
The term “premises” refers to a specific location or property, such as a building or land, that is occupied or used for various purposes. It typically refers to a physical space or property that serves as a place of business, residence, or any other designated function.
Tax implications of using or buy/sale of premises
When it comes to tax implications in India, the term “premises” can have different tax considerations based on the specific usage and ownership. Here are a few key points to consider in this context.
Property Tax – Premises, whether residential or commercial, may be subject to property tax levied by local municipal authorities. Property tax is an annual tax imposed on the ownership or occupation of properties based on their assessed value. The tax rate and assessment methodology vary across different states and municipalities in India.
Income Tax – Premises used for business or commercial purposes may have income tax implications. For example:
a. Rental Income – If the premises are rented out, the rental income is treated as taxable income under the head “Income from House Property” and subject to income tax.
b. Business Income – If the premises are used for business operations, the related income, such as profits or gains derived from business activities, would be taxable under the applicable provisions of the Income Tax Act, depending on the business structure (individual, partnership, company, etc.).
Capital Gains Tax – If the premises are sold or transferred, capital gains tax may apply. The profit or gain arising from the sale of premises is categorized as a capital gain and taxed accordingly. The tax treatment depends on factors such as the holding period of the premises, the nature of the asset, and the applicable tax rates.
Goods and Services Tax (GST) – In the case of commercial premises, such as rental or lease of commercial property, GST may be applicable. The lease or rental charges for commercial premises are subject to GST, which is a consumption-based tax imposed on the supply of goods and services.