In this article, Sanghamitra Sengupta of SLS, Pune, discusses whether a part of a residential house can be used for commercial purpose or not.

Using a residential property for commercial purpose has become a popular choice for thousands, in India. A cost-effective and time-saving option, you can use your residential property for commercial purpose, to effectively work from home and earn money.

You, as a tenant of your residential house, may want to start a clinic in one of the rooms of your house or a small parlor. There’s no harm in rendering these services from the comfort of your house, but, there are various things you need to remember before you allow “customers” into your house.

What is commercial activity?

Commercial activities are those which include purchase and sale of material goods and services. The activity includes capital, a risk of loss and motive of profit. These activities are different from what we call ‘professional activities’ such as services rendered by a doctor, lawyer, accountant etc.

Is there any law regulating the use of residential property for commercial activity in India?

• Yes. Zoning Law in India refers to the law made by the local municipal government or other local authority that deals with the construction of buildings and use of property on land.
• Regulations under zoning law basically spell out the use of land in a particular area. For instance, the local municipal authority in your area could make a law forbidding any establishment of industrial or commercial property, as it is a residential area.
• A zonal authority of a local area divides the town into 8 categories on the basis of their function conducted there: residential, commercial, industrial, public and semi-public, public utilities, open areas/parks/playgrounds, transport and communication, agricultural use.  
• The aim of zoning laws is to separate residential areas from commercial areas to protect the former from harmful effects of commercial activities and at the same time, aid the development of commercial areas.
• Zoning laws could decide the height of the building you erect or even the spacing between two buildings on a particular kind of land.
• For the purpose of zoning, a commercial area is any building or part of it where the sale of goods and services takes place. Goods could be merely displayed there for it to be deemed as a commercial area.
• Be it wholesale or retail, any business involving the abovementioned features taking place in a building or a part of it will contribute to its commercial nature. Moreover, even rendering professional services, operating a corporate, software office, restaurant, lodge, nursing home, cinema theatre, community hall, bank or club from a building accords it the status of a commercial area.
• As it is implied, zoning laws differ from state to state and some states allow use of a residential property for commercial use whereas some states do not.
• The Supreme Court, in a judgment, delivered in 2006 laid down directions on what activities could not be carried out in a residential area

1. Banquet Hall
2. Any trade or activity that involves use of hazardous, inflammable and polluting substance or process
3. Retail shops which deal with sale of building materials, junk food and liquor, printing, dyeing and varnishing
4. Repair shops for automobiles such as a car, auto rickshaw, bus etc.
5. Professional activities will not be allowed except by 4 professionals, i.e., chartered accountants, architects, doctors, and lawyers. These 4 professionals are only entitled to use a specified permissible percent of their residential premise for the commission of the professional activity.

What kind of activity is allowed by the zonal authority in residential and commercial areas?

Residential areas

• Residential areas may have a place of residence, i.e., dwellings, hostels for working individuals, old age homes, orphanages, places of public worship, schools, public libraries, post office, telegraph office, power company, repair places, milk collection store, etc. Anything can sustain in a residential area as long as it serves to the residents for their day to day life.
• Residential areas may also have certain establishments which can be permitted by the municipal authority, under special circumstances.
• Government offices, cemeteries, golf clubs, banks, hospitals, philanthropic organizations, fuel filling and storage stations, service industries with power up to 10 HP, power looms for silk twisting, internet cafe centres, convenience stores limited to 20 sq.m., doctors consulting room where the doctor himself must be the applicant for permission, pay and use toilets, vehicle parking, etc.
• It must be noted that all the establishments mentioned above must abide by the noise limit prescribed by Ministry of Environment and Forest, Government of India.

Commercial Area

• Commercial areas are dedicated to conducting sale and purchase and have a very economic aspect to it. This reason is why it is convenient to establish offices, shops, service establishments like beauty parlors, salons, laundries, tailoring shops, hotels, clubs, newspaper printing, banks, amusement parks, restaurants, places of worship.
• Often, establishments that may be established in a commercial area may be established in a residential area by obtaining special permission too but priority is given to residential houses in a residential area.
• It must be noted that all commercial establishments also have to abide by certain norms, such as, have proper provision for toilet facilities for customers, waste disposal management, etc.

Where to apply for a registration 

It is legal to carry on commercial activity from the comfort of your residential property, but, it is necessary for you to take prior permission, from the

1. Local municipal authority – In the case of the local municipal authority, you will have to explain the kind of commercial activity you intend on carrying out and the area you require for it.
2. Town planning authority – The Town Planning Authority demarcates areas in towns as commercial, residential or industrial. Permission of the town planning authority is highly important as initiating a commercial activity in a residential area may not be permitted by the town planning authority.
3. Landlord. Lastly, if you reside in the residential house as a tenant, you need to receive his permission in the form of a no-objection statement. The housing society could levy higher maintenance charge or parking charge from the tenant.

Is it necessary to obtain a license before starting a commercial activity on my residential property?

Yes. If you intend to carry out commercial activity at a residential property, you are obligated to obtain a license under the Shop and Establishment Act, enacted by your state. The act regulates any place where the commercial activity takes place and makes it mandatory for shops and commercial establishments to obtain a license before they start commercial operations.

If you are a legal or medical practitioner, who wants to start rendering services from a certain portion of your home, you are not required to obtain a license under this Act.

Will there be any effect on my electricity bill if I conduct commercial activity from my residence?

If you are carrying out commercial activity from your residence, your electricity bill is effected. Your electricity bill could be charging you either on a “domestic” rate or a “non-domestic” rate.

Domestic Rate

The domestic rate is available to the following types of residents/consumers:

• Residential consumers
• Hostels of recognized or aided institutions funded by any government or local authority of the country
• Cooperative Group Housing Societies
• Registered Bed and Breakfast Establishments
• Places of Worship
• Shelter Homes approved by the government of the particular state
• Electric Crematoriums

The consumers mentioned below must be funded by any government or local authority of the country

• Dispensary and Hospitals
• Public Libraries, Schools, College, Working Women Hostels
• Orphanage
• Charitable Homes

Lastly, the most important consumers who are charged the domestic rate are:

• Professionals, i.e., people who provide service based on their personal skill and intellect, such as doctors, lawyers, architect, chartered accountant, company secretary, cost and works accountant, engineer, town planner, media professional and documentary maker

These professionals are entitled to use domestic electricity connection at their residence, provided, they are engaged in consultancy services. These professionals can also not exceed the area meant for “professional use”, as prescribed by the concerned municipal authority.

Non Domestic Rate

If you are carrying out a business or commercial activity from your residence and not engaging in a profession, you will have to pay for your electricity, as per the “non-domestic rate”. The non-domestic rate is slightly higher than the domestic rate, owing to the commercial activity conducted in the residence.

Will the property tax I pay be affected due to the commercial activity?

Property tax is the amount paid by the property owner or landowner to the government. In case of the commercial activity being of such a nature, which requires you to convert your residential property to a commercial property, with the permission of the local municipal authority and housing society, you will have to pay a different property tax. In case of commercial property, property tax is higher than that paid for the residential property.

Case

1. Providing professional services from your residential property

• V. Sasidharan vs Peter & Karunakar & Ors (1984)– This was a Supreme Court judgment in which, it was decided that the office of a lawyer or advocate at his residential property does not amount to a commercial establishment. The office, therefore, requires no license under the Shop and Establishment Act, in order to continue functioning.
• Philipose and Company Vs. State of Karnataka (1989)- This Karnataka High Court judgment decided that the services rendered by a chartered accountant, from his residence, does not amount to commercial use of the property. A chartered accountant uses his skill, proficiency in the subject and intellect while rendering these services. Earning of fees cannot be equated to the “profit” a commercial establishment earns.

Conclusion

Conducting commercial activity from the comfort of your residence is an economically feasible option, to many. Costs like that of renting another space for commercial activity and of transport are reduced substantially. But, what needs to be kept in mind is that the usual norm disallows such establishments in residential areas. Seek permission from the housing society you reside in, local municipal authorities, zoning authorities before you set off with commercial activity at a residential space.