Can residential properties be used for commercial purposes?

Most people consider starting a business and setting up a home office, a clinic or a beauty parlour in their residential property to earn additional income. Moreover, it is usually a cost-saving solution than investing or renting a commercial property, owing to high rental values. However, before you start commercial activities on a residential property, it is important to understand the laws related to using a residential property for commercial purposes in India.


Is it legal to use a residential property for commercial purposes?

One can use a residential property as a commercial space after obtaining the required legal permission from the authority concerned. The laws pertaining to this may differ from state to state. In some states, up to 50% of a residential property can be permitted to be used for commercial activity by professionals, such as doctors, chartered accountants and lawyers, while it is 30% in other states.

Commercial activities refer to the sale and purchase of goods or services, which involves capital, a risk of loss and a motive of profit. However, these are different from the professional activities such as services offered by doctors, accountants, lawyers, etc., which are approved commercial activities in a residential property. However, they cannot operate in more than 50% of residential coverage. Other services permitted in homes include tuition, yoga or dance classes, clothing boutique, food delivery from a house kitchen, etc.

In housing societies, one may be allowed to use a fixed area for business purposes, depending on the state and city where the property is located.


Can residential property be converted into commercial property?

Conversion of a residential property to a commercial property is governed by the Zoning Laws. These laws are formulated by the local municipal authorities and relate to the division of land into zones, under which specific land uses are allowed or prohibited. A town may be divided by the zonal authority into different categories based on their function, such as residential, commercial, industrial, agricultural, public and semi-public, open areas, transport and communication.

These laws aim to separate residential areas from commercial areas, protecting them against the harmful impact of commercial activities. For example, there may be a law prohibiting any establishment of industrial or commercial property in a residential area.


What are the commercial activities prohibited in residential areas?

According to a Supreme Court Judgment in 2006, certain activities cannot be carried out in a residential area, which include:

Construction of a banquet hall
Any trade or activity involving the use of hazardous, inflammable and polluting substances or process
Shops dealing in liquor, sale of construction materials, timber, iron, steel, sand, firewood, coal, etc.
Automotive repair or workshops
Professional activities except those by chartered accountants, architects, doctors and lawyers


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