Service Tax on Renting of Immovable Property

 1. Introduction

Renting of Immovable property has been taxed under the earlier tax regime vide Section 65 (105) (zzzz). Renting of immovable property has been brought into tax net vide Notification No. 23/2007-ST dated 01.06.2007.

But After 1.7.2012, the transition involves shift from taxation of 119 service-specific descriptions to a new regime whereby all services will be taxed unless they are covered by any of the entries in the negative list or are otherwise exempted. Accordingly as per clause (44) of section 65B of the Act it has also been stated that service includes a declared service. And Renting of Immovable property is the part of declared service.

 

2. Definition of Renting

Renting means -

  • allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property
  • with or without the transfer of possession or control of the said immovable property
  • and includes –
    • letting
    • leasing
    • licensing or
    • other similar arrangement.

The contract is for right-to-use an immovable property for a consideration.

3. Service Tax on Rent not Payable in following cases

Certain activities have been included in the negative list of services and hence following immovable properties are excluded from the scope of service tax -

  • Renting of vacant land, with or without a structure incidental to its use, relating to agriculture.
  • Renting of residential dwelling for use as residence
  • Renting out of any property by Reserve Bank of India
  • Renting out of any property by a Government or a local authority to all non-business entity.

Note – Residential units let out for commercial purposes would come under the purview of service tax.

4. Exemption from Service Tax on Rent

In addition to few activities in negative list, following are exempted from service tax

  • Renting of precincts of a religious place meant for general public.
  • Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt.
  • Renting to an exempt educational institution.
  • If the total value of rent received by the owner is less than Rs.10lakhs.

5. Rate of Service Tax & Computation of Service Tax on Rent

a) The value of taxable service will be the gross amount received from renting of property reduced by property taxes levied and collected by local authorities.

b) Any amount charged by local authority in the form of interest or penalty for late payment of property taxes shall not be reduced from gross amount charged.

c) Service tax on rent would be computed @12.36%. However, this rate has been increased to 14% in budget 2015. This new rate rate of service tax is not yet applicable.

Hence, Service tax on rent = (Gross Amount Received – Property taxes) x Applicable rate of Service Tax

d) Where the period for which property tax paid is different from the period for which service tax is paid or payable, property tax proportionate to the period for which service tax is paid or payable shall be calculated and excluded from gross amount received.

e) Clarifications on the nature of amount received from tenant -

S. No. Amount Received Description Taxability
1 Renting Service Towards of Renting of Immovable Property Service tax is applicable
2 Security Amount Refundable Amount Service tax is not applicable
3 Security Amount Non-Refundable Amount Service tax is applicable
4 Security Amount Which is Adjusted against Rent Amount Service tax is applicable
5 Electricity Amount For supplying electricity in flats/shops (Charged on actual basis) Service tax is not applicable
6 Maintenance Service Towards maintenance of building/complex Service tax is applicable

6. Frequently Asked Questions

 

S. No. CASE Whether Service Tax is Liable or Not
1 Permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function Service tax is Applicable
2 Renting of property to an educational body for the purpose of education Service tax is not applicable (As Per Mega Exemption)
3 Renting of vacant land for animal husbandry or floriculture Service tax is not applicable (As Per Negative List).
4 Permitting use of immoveable property for placing vending/dispensing machines Service tax is Applicable
5 Allowing erection of a communication tower on a building for consideration. Service tax is Applicable
6 Renting of land or building for entertainment or sports Service tax is Applicable
7 Renting of theaters by owners to film distributors (including under a profit-sharing arrangement) Service tax is Applicable
8 Hotels/restaurants/convention centers letting out their halls, rooms etc. for social, official or business or cultural functions Service tax is Applicable
9 Commercial Property For Commercial Use Service tax is Applicable
10 Residential Property For Residential use Service tax is not liable (As Per Negative List).
11 Residential Property For Commercial Use Service tax is Applicable

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