'A' have a residential property, and that property given on rent basis to a firm for the purpose of firm executive residence, 'A' taken that property as housing loan and pay EMI. 'A' received rent amounting to Rs.2,50,000/- P.M. Is 'A' charge service Tax on rent on that property?
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There is no rent on residential accomodation. However if a residetnial property is used for commercial usage then there could be a doubt.
In the above query, the residential property is given to a firm for the purpose of firm executive residence. To decide the applicability of service tax, we have to study the agreement between "A" and the "Firm" to ascertain the terms and conditions stipulated in the agreement.
However, when the rent is paid by the Firm, a question arises as to whether the house is used exclusively for the purpose of residence OR is used for both official and residential purpose. If it is for both the purposes, then service tax is payable. The definition of the service clearly says "for use in the course of furtherence of business or commerce..". The Department may say, the rent paid by the firm to "A" is to accomodate the firm's executive as per the terms of the employment agreement between the firm and the executive as part of his salary and perks and as such, the renting is to be treated as "use in the course of furtherence of business.
It is better advised to pay service tax to avoid litigation. The Firm can avail "cenvat credit" to the firm (provided the firm is a manufacturer or service provider).
On the other hand, if the rent is paid by the executive itself directly to "A" based on rental agreement between "A" and the "executive" and inturn the employee gets reimbursement, it will not subject to service tax because, "A" has agreement with only 'the executive' and not with the Firm.
If the building is solely used for residential purposes and agreement support the position, then there would be no service tax levy as the explanation clearly excludes 'building used solely for residential puposes...' from immovable property liable for tax.