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Networking, professional address, excellent discounts and offers, flexibility, dedicated meeting rooms, and reduced operational costs – are a few of the several benefits of co-working spaces. But, do you know these spaces offer benefits concerning tax as well? With a basic exemption limit of Rs. 2.5 Lakh, Indian income tax rates vary according to a person's income and age. Whether you opt for the Existing Tax Regime or the New Tax Regime (with lower tax rates), you might pay a whopping 30% tax rate when your income falls above 15 Lakhs per annum (and above 15 Lakhs under New Tax Regime). The good news is your coworking membership is totally deductible as it represents your business cost. Keep reading to learn more.
Is your home office tax deductible?
If you regularly and exclusively use a portion of your house as an office for business purposes, you can claim an IT deduction. For that, you need to keep a record of your daily business activities and track the usage of work-related equipment and supplies. To claim, you have to measure your home office accurately based on whether you use the whole room or a part for business. Occasionally, you may use a different area inside your house or conduct business outside. So, while calculating the square foot to claim benefits, should you under or overestimate, you could be in the soup.
An easy solution would be renting a coworking space. With CoSqrd, you will get instant access to thousands of workspaces and meeting rooms near home for heads-down work. You will also get exclusive access to ₹1.5 Crores worth free benefits and discounts featured by partner programs.
Tax benefits of renting meeting rooms (Membership)
Similar to a home office, when you use a coworking space exclusively for business purposes, it qualifies for a tax deduction. For instance, if you are a freelancer looking to rent meeting room for a day or a business owner seeking meeting rooms for rent to impress your clients without being barged in, you can opt for coworking. As it relates to generating your business income, you can claim the expenditures while filing your income tax. Unlike a home office, you do not have to keep tabs on separate bills (rent, utilities, equipment, and maintenance) for filing purposes. One bill covers all expenses.
What other tax benefits do you get by renting coworking spaces?
Below are the other office expenses you can write off on your income tax.
Food
As the rule of thumb, when you have your daily meals, snacks or coffee in a coworking space, it is a personal expense and hence non-deductible. But, if you are having meals with your employees at a networking event, business partners, or a client, save the receipt. The only requirement is that the event must have a business purpose or career goal.
Cost of commuting and parking
If you are a salaried employee, under section 10(14) (ii) of the ITA, Rule 2BB of Income Tax Rules, you get an exemption of up to Rs.1,600 per month and ₹ 19,200 per year as travel or conveyance allowance. As for physically challenged employees, it is ₹ 3,200 per month. If your company does not provide travel allowance, regular transit from home to work and parking becomes non-deductible. In this regard, most CoSqrd spaces are situated in coveted prime locations with free onsite parking. That's one less thing to worry about. Or you can choose the one that is near your home, walk to work, and bypass the need for conveyance allowance.
Additional business expenses
While you can deduct equipment such as printers, computers, office furniture and supplies from tax in a private office, they come included in the membership fee in case of coworking spaces.
Tax deduction for home office Vs coworking – Which is beneficial?
When you have young children or old-age parents to attend to, you can work from home, enjoy tax benefits and probably avoid the cost of hiring a caretaker. But it will take a toll on your productivity. On the flip side, renting a private office forces you into signing yearly leases with increased operational costs. So, coworking spaces are the perfect solution as they increase productivity and reduce overhead costs. And when you become a member, you qualify for tax deductions too.
Also, your tax calculation varies depending on whether you work from home or in a coworking space. Calculating the used area while working from a home office is complicated. You must take care of your energy and internet bills and invest in a work set-up. Needless to say the extra bucks you spend to rent meeting room for a day or an hourly basis to meet clients.
In a coworking space, everything is taken care of, leaving you with just one overall bill. Remember to save all expenses and invoices for future reference should there be any questions.
All set to give coworking a try?
Coworking spaces are the best alternative to home offices and are highly sought-after. A recent report from Financial Express confirms the same. Coworking operators have added 21% more office spaces in 2022 across the top 8 cities and are on the rise.
If you are a SEZ employee, here's the good news. Rule 43A of the Special Economic Zones Rules, 2006, permits all SEZ employees to WFH for a maximum of 1 year, allowing them to extend this to 50% of total employees.
So, joining a coworking space not only presents you with tax benefits but also lets you join a community of like-minded professionals and network with them. A community of people from various walks of life you wouldn't want to miss.
All tax situations are unique. Always consult a tax professional to learn the claim on your monthly invoice of coworking membership and additional business expenses. In most cases, you can claim all of them but ensure you do it under the right category, 'office expense' or 'rent'. By doing so, your taxable income might drop to the next lower bracket, reducing the tax rate. If you would like to explore our meeting rooms for rent, virtual offices, hot desks for a day and a range of other amazing support services that can be booked instantly, visit the CoSqrd website now.
