When Amrutha Prakash launched her start-up, finding a commercial space was one of the major challenges for her.
Since her start-up was in a nascent stage, she decided to manage it from her 2BHK apartment with the two other partners.
Amrutha is not the only person who has converted her home into a home office. Due to exorbitant rentals for commercial space, several small businesses are often run from residential spaces.
So, is it allowed to run an office from home? Are there any tax implications? Let’s find out.
Decoding the laws
As per the Article 19(1)(g) of the Constitution of India, all citizens have the right to practise any trade, business, or profession.
However, one must remember that the law distinguishes between carrying on a trade or business as against practising a profession. The reason being that unlike trade or business, a profession is practised without any underlying profit motive.
Thus, for carrying a trade or business, you might require some additional permissions from the civic authorities, while a profession can be practised without any legal implications.
What is a profession?
In a case filed under the Karnataka Shops and Commercial Establishments Act, 1961, the court had ruled that home offices run by chartered accountants, lawyers, and doctors should not be classified as commercial offices. The court said that such professions involve the exercise of intellect and not manual or physical labour.
Similarly, even if you want to start yoga classes or give tuitions, the law can’t classify that as a commercial activity. The services here will not be categorised under the sale and purchase of goods.
What do the zoning rules say?
As per the zoning rules, one can use or rent their residential property for commercial activity. However, different states have a different set of rules on the conversion of residential property to commercial property.
Some states allow up to 20% usage of home space for commercial use while some allow up to 30%.
However, necessary approvals from the housing society are mandatory. If you are staying in rented accommodation, getting a No Objection Certificate (NOC) from the landlord is advisable before approaching the housing society.
What are the activities that cannot be carried out in a residential area?
Activities such as:
- Trade or activity that involves the use of hazardous, inflammable, and polluting substance or process
- Retail shops which deal with the sale of building materials, junk food, and liquor, printing, dyeing, and varnishing
- Repair shops for automobiles such as a car, auto rickshaw, bus, etc.
- Usage of the property as a banquet hall
How can a home be converted into an office?
The first step is to get the approval from your Residents’ Welfare Association. As mentioned above, a NOC is also mandatory in case you are put up in a rented accommodation.
Next, you have to apply for a Shop and Establishment Licence from the concerned municipal authority.
A word of caution
Once a property is marked as commercial, it would be treated as a commercial property for all purposes, which includes paying more as property tax.
Even the water and electricity charges will be levied based on a commercial property.
Thus, it is advisable to weigh the additional cost of taxes before converting a home into an office just to save the rentals.