Nowadays, more people are venturing into entrepreneurship. As a result, the idea of owning a home is also becoming popular. For many start-ups and small businesses, real estate costs, along with operational expenses, can be significantly high. Many professionals such as consultants, advocates, doctors and small business owners operate from their residences. Turning a residential property into an office can help reduce real estate costs. However, one may need to obtain the necessary permissions. In this article, we understand the laws and regulations for running a business from home.
Private practice from home is not entirely commercial activity
Legally, consultants, advocates and doctors can run their business from their residential premises. In a case filed under the Karnataka Shops and Commercial Establishments Act, 1961, the court held that home offices run by chartered accountants, lawyers and doctors cannot be considered as a commercial activity when the work involves intellectual exercise or professional services rather than physical labour or the sale and purchase of goods.
Running yoga classes or tuition classes from home will also not be counted as a commercial activity, because the services rendered by the said professionals will not be categorised under sale and purchase of goods. However, there is a difference between operating a professional office from a residence and running a commercial business from home. For instance, if a person operates an office from their apartment, this practice is legally allowed in different parts of the country. The increase in the practice of ‘intellectual’ professions – doctors, lawyers, tuition centres, etc. has made this set-up widely popular in cities like Delhi.
On the other hand, things are seen differently from a full-fledged commercial activity. The kind of activity conducted, the use of the premises and whether there is storage or movement of equipment or goods from the property will determine whether it is legally allowed and whether additional approvals are required. The moment the said property is used as a godown or there is movement of goods, it becomes a commercial activity. Then, relevant approvals/ licences from local municipal offices and other related authorities, such as the fire department and the local police station, will be required.
See also: A quick guide to investing in commercial property
Various laws governing commercial activities in residential properties
To turn a home office into a space for commercial activities, one needs to be aware of the various legal requirements. Examples of such activities include retail shops, restaurants or a manufacturing set-up.
Firstly, if it is a tenant who wants to run the commercial activity, they need approval of the landlord and the housing society or RWA. Apart from this, permission from the local authority will be required for tax-related obligations and business registration.
Additionally, there are local zoning laws that vary from state to state. It is important to check if the specific location is meant for residential, commercial or mixed-use developments.
How can you convert your home into an office?
You need to first inform your residents’ welfare association (RWA). This is a must if the business involves movement of goods and storage. In case you are put up in a rented accommodation, you will need to seek permission from your landlord in addition to the RWA.
While working from your own office is more cost-effective, the work may happen at a relaxed pace. On the flip side, a house address may not be very convenient for a client meeting. Other disadvantages of having an office in residential premises may include the absence of outlets that serve food, a sitting area, and other basic infrastructure.
Moreover, there may be problems related to vehicular movement and parking. It is important to check the RWA rules as there could be permissions. The individual may also need to pay additional charges for the designated parking.
Any change of address at a later stage may also involve documentary and regulatory procedures. Moreover, in case the activity is deemed commercial, your house will incur a property tax applicable on commercial properties. Even the water and electricity charges will be levied on the basis of a commercial property. There may also be associated renovation costs that you will incur, to give your house an office environment.
