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CA Nitin Gupta

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. Renting of immovable property

(i) Only amount which is received in the nature of rent in respect of immovable property are covered under declared service and accordingly service tax is applicable on such amount. So that I would like to discuss that meaning of “Renting” which has been defined in Section 65B of finance Act, 1994.

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 (ii) If Security amount is received in respect of immovable property to service provider and such amount is refundable amount then such amount shall not be treated as the part of service and accordingly service tax is not applicable on such security amount.

(iii) But if Security amount is adjusted against the amount of rent then in such amount shall be treated as the part of service and accordingly service tax is applicable on such adjusted amount.

(iv) If Electricity Charges is received in respect for supplying electricity in flats/shops (Charged on actual basis) then such amount shall not be treated as the part of service and accordingly service tax is not applicable on such electricity amount.

(v) If Service provider also provides service of maintenance Service towards maintenance of building/complex then in such case such service is treated as another service and accordingly service tax is applicable on such service.

3. Summary of above discussion

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

 4. Valuation

As Per N/N 29/2012, the taxable service of renting of an immovable property, from so much of the service tax leviable thereon under section 66B of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies.

Provided that any amount such as interest, penalty paid to the local authority by the service provider on account of delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes of deduction from the gross amount charged.

Provided further that wherever 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 the amount so calculated shall be excluded from the gross amount charged for renting of the immovable property for the said period, for the purposes of levy of service tax.

Analysis

VALUE OF TAXABLE SERVICE= Gross Amount – PROPERTY TAXES( On Proportionate Basis)

NOTE- INT AND PENALTY NOT DEDUCTIBLE

Example:-

Property tax paid for April to September = Rs. 12,000/-

Rent received for April = Rs. 1, 00,000/-

Service tax payable for April = Rs. 98,000/- (1, 00,000 -12,000/6) * applicable rate of service tax

  5. If Person Liable to pay service tax has paid excess amount of service tax on account of non-availment of deduction of Property tax Paid.

In Such Case, as per sub rule (4C) of Rule 6 of service tax rules, 1994

Where the person liable to pay service tax in respect of services of renting of immovable property has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, on account of non-availment of deduction of property tax paid in terms of notification No. 29/2012 ice Tax , dated the 20th June, 2012, from the gross amount charged for renting of the immovable property for the said period at the time of payment of service tax, the assessee may adjust such excess amount paid by him against his service tax liability within one year from the date of payment of such property tax and the details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of fifteen days from the date of such adjustment.

Analysis

SELF- ADJUSTMENT OF S.TAX WITHIN 1 YEAR from the date of payment of such property tax – IF EXCESS S.TAX PAID DUE TO NON DEDUCTION OF PROPERTY TAX.

AND

The details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of fifteen days from the date of such adjustment.

 6. Rate of Service Tax

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve percent. On the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

7. Abatement value

As Per N/N – 26/2012

Entry No. Description of taxable Service Taxable Portion Exempted Portion Condition
6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes 60% 40% CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

 8. Place of Provision of Service Rule

In this service place of provision of service is depends upon the following situation:-

(i) Where “Service Provider” and “Service receiver” is situated in taxable-territory.

As per Rule 8 of Place of Provision of Service Rules, 2012

(Place of provision of services where provider and recipient are located in taxable territory).-

Place of provision of a service, where the location of the provider of service as well as that of the recipient of service is in the taxable territory, shall be the location of the recipient of service.

(ii) Where any one is (i.e. either “Service Provider” or “Service receiver”) is situated in non-taxable territory and Renting Service is availed only for one Immovable Property.

As per Rule 5 of Place of Provision of Service Rules, 2012

(Place of provision of services relating to immovable property).-

The place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located.

(iii) Where any one is (i.e. either “organizer” or “Service receiver”) is situated in non-taxable territory and Renting Service is availed for more than one Immovable Property.

As per Rule 7 of Place of Provision of Service Rules, 2012

(Place of provision of services provided at more than one location).-

Where any service referred to in rules 4, 5, or 6 is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided.

Analysis

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9. Point of Taxation Rule

CASE 1:- “if Service shall not be treat as import of service.”

As per Rule 3 of Point of Taxation Rules, 2011

Determination of point of taxation.- For the purposes of these rules, unless otherwise provided, ‘point of taxation’ shall be,-

(a) the time when the invoice for the service provided or to be provided is issued:

Provided  that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service”;

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Provided that for the purposes of clauses (a) and (b), —

(i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;

(ii) Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).”

Explanation .- For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.”.

Analysis

Determination of point of taxation

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CASE 2:- “if Service shall be treat as import of service.”

In this case point of taxation is determine as per Rule 7 of Point of Taxation Rules, 2011

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10. CENVAT Credit Rule

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11. When such is considered as “Non-Taxable Service” or “Exemption Service”

(i) Non-Taxable Service

 Covered Under Negate List

  • 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 + a non business entity.
  • Sale of Space of Immovable Property for advertisement Purpose.

(ii) Exempted Service

 Covered Under Mega Exemption
• 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.
• Renting to an exempt educational institution.

(iii) Other Exemption

Threshold level exemption up to Rs. 10 lakh. (I.e. Small Service Provider)

12. Situations

CASE

Whether Service Tax is Liable or Not

permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function Service tax is Applicable
Renting of property to an educational body for the purpose of education Service tax is not applicable (As Per Mega Exemption)
Renting of vacant land for animal husbandry or floriculture Service tax is not applicable (As Per Negative List).
Permitting use of immoveable property for placing vending/dispensing machines Service tax is Applicable
Allowing erection of a communication tower on a building for consideration. Service tax is Applicable
Renting of land or building for entertainment or sports Service tax is Applicable
Renting of theaters by owners to film distributors (including under a profit-sharing arrangement) Service tax is Applicable
Hotels/restaurants/convention centers letting out their halls, rooms etc. for social, official or business or cultural functions Service tax is Applicable
Commercial Property For Commercial Use Service tax is Applicable
Residential Property For Residential use Service tax is not liable (As Per Negative List).
Residential Property For Commercial Use Service tax is Applicable

13. Flow Chart for “Renting of Immovable Property”

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Note: – If any query relating, please sent mail at nitin.gupta52@yahoo.com.

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86 Comments

  1. pushpa says:

    sir , Post office building is taken on rental basis from Municipal commitee , which is only for public welfare but they are demanding rent +GST+service tax .our deptt is paying rent +GST and service tax is not being paid to them . Please clarify that whether service tax be paid to MC or not

  2. V. Singh says:

    Sir,
    I have taken a building on rent under the category of renting of immovable property on which I pay S.Tax and rented out my property ( the rented out place is different from the above property)) to the other registered person on which I collect S.Tax. Now my question is that I can take credit of tax paid to the former and set off my liability with the later.

  3. Annamalai says:

    we are doing construction business (pvt ltd), we construct flat but no sale as made, so we let out all the flat for residential purpose, now whether service tax is applicable for us ? at what rate ? in which head i have show my income ?

  4. Vellore Distributors says:

    dear sir,
    1) we have given our ware house on rent to a cfa agent who is dealing with fertilizer storage. the annual rent exceeds 10 lakhs. but he says according to M.I.(D.R.)F.NO.B11/1/2002-TRU-DATED.01.08.2002. he does not need to pay service tax on this rent to the land lord. kindly clarify. thanks in advance.
    2) also another client who is a cfa agent with coldstorage is also taken up our warehouse on rent and installed cold storage in it and running as a cfa agent for dairy products. does he also has to pay service tax on rent.
    3) if they are exempted then how to explain this to our are service tax officers

  5. pragati says:

    if we take a shop on rent and lanlord charging service tax from us.and we are paying service tax with rent. then can we file the claim of service tax

  6. jitendra gupta says:

    can private ltd. company take reverse charge tax credit against the service tax recd on renting of immovable properties as a input tax credit.

  7. Arinjay Jain says:

    whether service tax will be applicable on mere collection of rent for ex. A Collected rent (including Service Tax) from B on behalf of C and now C is also demanding service tax on same value.
    My question is that whether Service Tax can be levied twice on a Single Service.

  8. Vani Mishra says:

    I would like to know that i have given my godown on rent to a government corporation which is used by it for public distribution purpose, please tell me whether service tax is chargeable on the amount of rent received by me or no?? or is it exempt.

  9. amish says:

    Dear Sir,
    We have raised Rent(Rent against Immovable Property) on customer in may-15 with old tax rate 12.36% Service tax rate and effect given to 3 GL i.e. Basic , Ed.Cess & Higher Ed.Cess. Now in August 31st 2015 same rent is cancelled and refunded to customer so in that case what effect goes to Service tax i.e.we should give effect to Basic only or have to give 3 GL(Basic,Educess & Higher Ed.Cess)

    Awaiting for your Reply.

    Thanks & Regards
    Amish

  10. amish says:

    Dear Sir,
    We have raised Rent on customer in may-15 with old tax rate 12.36% Service tax rate and effect given to 3 GL i.e. Basic , Ed.Cess & Higher Ed.Cess. Now in August 31st 2015 same rent is cancelled and refunded to customer so in that case what effect goes to Service tax i.e.we should give effect to Basic only or have to give 3 GL(Basic,Educess & Higher Ed.Cess)

    Awaiting for your Reply.

    Thanks & Regards
    Amish

  11. Sashank says:

    Nitin Ji,

    I have taken a property in rent for business purpose.My landlord is asking if you will deduct TDS then i will charge service tax and will give you a bill inclusive service tax . If i am giving by cash he is ready to take without charging Service tax and if i am giving by cheque or NEFT he is charging service tax .

    my question is if he is registered under ST and availing a valid TIN then how can he charge service tax according to his wish ?

    can you please guide me

  12. Sanjay Shah says:

    How to give on rent a commercial building by 4 family members where annual rent is 24 lacs? If AOP is formed 30% IT is applicable. How to charge service tax and how to divide TDS in any other scenario as none is in 30% IT slab and under AOP 30% liability arises.

  13. S.Kumar says:

    Dear sir,

    I have a one question about applicable of ST is there on rent for immovable property (Misc. Company ) Gross Rent receivable 40 Lakh yearly if 5 co-owners are there. The rent receivable by cheque to indivdual 5 co-owenrs.

    it is cover by taxable service or not, please suggest to me sir Thank You.

  14. ANANTH says:

    DEAR SIR,
    I RENT A HOUSE FOR THE USE OF MY TRUST ACTIVITY,MINE IS A REGISTERED RELIGIOUS AND CHARITABLE TRUST MY HOUSE OWNER SAYS BECAUSE MY SERVICE IS NOT UNDER NEGATIVELIST I SHOULD PAY SERVICE TAX WHAT SHOULD I DO

  15. RAJESH PANYDA says:

    sir,

    I want to know what is the meaning of property tax? if we give the property of
    Rent basis whom to responsible of property tax under the which rules?

  16. Kumar Sinha says:

    I owned a building and was running a Hotel Business , I rented out the entire hotle under the same name and style to some other person who is running the Hotel and paying me the monthly rent under the Lease Agreement .
    Can u guide me upon whom is the liability to pay Service Tax.

    Regards

  17. Rahul says:

    If the income from rent is Rs.45Lac

    The income of rent from government is Rs.40Lac and Pvt parties is Rs.5Lac.

    Is the 5 Lac is treated as amount below exempetion of 10 Lac and no tax is recoverable or the party has to pay the S. tax

    Please mention the notification also if any available.

  18. TVS says:

    If a Commercial Property in Andheri,Mumbai is RENTED OUT to a Commercial Business then is SERVICE TAX PAYABLE by Recipient of the RENT(OWNER) or by the Renter? And is there any ABATEMENT involved? And what is the SERVICE TAX RATE at which to be paid the STAX Dues?

  19. CA Ramil Pandit says:

    Dear Nitin ji
    There is a university which let out its space for parking,cafeteria,drug shop. It is a university that is exempt from Income tax. Will service tax liable on the rent received by the university.

    Thanks
    ramil

  20. Saurav Bajaj says:

    i have 3 doubts on my mind on the Renting of immovable Property. Please clarify with section and clauses
    1. if a Property Owner have 2 Commercial property on rent, Income received from One tenant of Rs. 8Lakh and other tenant of Rs. 6 Lakh, is service tax aaplicable on Owner? if yes then how can they charged from Tenant . Given with example
    2. if a Property Owner have 2 Commercial property on rent, one is individual and 2nd property in joint with other Co-Owner? Rental income from first Tenat of Rs. 8lakh and Rs.6Lakh from other tenant (3-3 Lack Each). Now Service tac applicable on it? if yes given detailed with example

  21. Saurav Bajaj says:

    i have 3 doubts on my mind on the Renting of immovable Property. Please clarify with section and clauses
    1. if a Property Owner have 2 Commercial property on rent, Income received from One tenant of Rs. 8Lakh and other tenant of Rs. 6 Lakh, is service tax aaplicable on Owner? if yes then how can they charged from Tenant . Given with example
    2. if a Property Owner have 2 Commercial property on rent, one is individual and 2nd property in joint with other Co-Owner? Rental income from first Tenat of Rs. 8lakh and Rs.6Lakh from other tenant (3-3 Lack Each). Now Service tac applicable on it? if yes given detailed with example
    – See more at: https://taxguru.in/service-tax/note-renting-immovable-property-service-tax.html#sthash.YOf9KzJm.dpuf

  22. chetan prakash says:

    dear sir

    we want to purchase a commercial property in three joint name & present rent income is 20lakes per annum
    we want to know that whether service tax will be aplicabel on us or not as we are indivasel income from rent is less then 7 lacks
    pls give advice

  23. AJAY S SHAH says:

    I HAVE RENTED PROPERTY & I COLLECT SERVICE TAX ON RENT AMT BUT I AM NOT COLLECTING SERVICE TAX ON MAINTENENCE CHARGES
    PLEASE GUIDE ME WHETHER SERVICE TAX LEVIBLE ON MAINTENENCE CHARGES OR NOT

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