RENTING OF IMMOVABLE PROPERTY-SERVICE TAX IMPLICATIONS

[KAMARAJ RENGARAJ]

Introduction:

As far as the “Renting” is concerned, Section 65B (41) of the Finance Act, 1994 reads as under:

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 arrangements in respect of immovable property.  There has been much confusion in the past regarding the applicability of Service Tax on Rent as the Government’s  stand was not line with what the High Court’s decisions on the levy of Service Tax on Rent which lead to confusions.

To remove all such confusions, the Government, while introducing the Negative List of Services regime in Service Tax with effect from 1st July 2012, has defined ‘service’ contained in Clause (44) of Section 65B, specifically mentioned as “Declared Service”. Declared Services are those services which would be deemed to be a service, and Service Tax would be payable on the same.

Scope and Exemption from Service Tax on Rent

For the period upto 30.06.2012 renting of immovable property which was used for any purpose other furtherance of business or commerce was kept out of the purview of service tax.  With effect from 01.07.2012, renting for educational and religious purposes only have been specifically exempted vide Notn.No.325/10212 dt 20.06.12.  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 Rs.1000/- per day is also exempt.    

The following types of activities have been specifically exempted from the applicability of Service Tax on renting of immovable property:-

1. Renting of Vacant Land, relating to Agriculture

2. Renting of Residential dwelling units for use as Residence*

3. Renting out any property by the Reserve Bank of India

4. Renting out any property by a Government or a Local Authority to a non-business entity

5. Renting of precincts of a religious place meant for general public

6. Renting to an exempted educational institutions

Only Residential units let-out for use as Residence are exempted. Service Tax on Residential units let-out for the purpose of any commercial activity would come under the purview of tax and thus service tax would be liable to be paid on Residential Units let-out for the purpose of any commercial activity.

Renting or permitting usage of any property for a temporary purpose like conduct of a marriage or any other social function would also be taxable.

Service Tax is only mandatorily liable to be paid if the total value of services provided by the service provider exceeds the threshold limit of Rs. 10 Lakhs p.a.

VALUATION

While electricity paid on actual basis will not form part of the taxable value maintenance charges debited to parties account will be included for service tax calculation.  The Ministry of Finance vide Notification No. 29/2012 Service Tax dated 20^th June 2012, announced that Service Taxis to be levied on the Gross Amount charged for renting of such immovable property and property Taxes paid on Such Property can be deducted from the gross amount.

But any amount such as Interest, Penalty paid to the Local Authority by the Service Provider on account of delayed payment of Property Tax or for any other reason shall not be treated as Property Tax for the purpose of deduction from the Gross Amount Charged.

Example:

Rent Received for the Year: Rs. 10 Lakhs

Property Tax paid for the Year: Rs. 48000.00

Balance : Rs. 9,52,000.00 

Service tax will be payable only for Rs.9,52,000.00.

Where there is an excess payment on account of property tax not adjusted, the excess amount can be adjusted within one year by the assessee.