Does Buying More Than One Home Indicate Commercial Intent?

Nivedita (45) and Shekhar Kandpal (50) had only one home in Chandigarh. That the property could become a bone of contention between their two sons, Abhishek and Raghav, was a thought that kept nagging the couple. To simplify matters, the couple invested in another property in the city so that that can be a clearer division of property at a later stage.  

In this example, the purpose of the investment has totally been personal and terming the Kandpals' latter investment as commercial will not be fair. However, even if you told your friends that you are planning to buy a second home, they are sure to assume the purchase is meant to provide you commercial benefits.

India's legal system was no different and property investment laws are interpreted accordingly. However, the National Law Commission has recently clarified that purchasing a second property cannot be termed a commercial investment without examining the purpose of the transaction.

It has to be noted that there are tax implications on purchasing a second property; the charges are much higher if the property is meant to carry out commercial dealings.

So far, buyers who have invested in multiple properties purely for residential purposes had to go through a bias owing to a lack of clarity on the laws governing investments. For instance, if the Kandpals took the seller of their second house to court over fraud charges, in all likelihood the court would find the couple, terming their investment commercial. This is the area the recent Law Commission explanation will clear the confusion on.

It has to be noted that a large section of buyers in metro cities do invest in multiple properties with an aim to reap commercial benefits, including renting, etc. However, Indian home buyers have a strong tendency to invest all their money in real estate without meaning to use them for business activities. Making such buyers pay more without examining the intent of their purchase is undoubtedly an unfair practice.