SERVICE TAX ON RENTING OF IMMOVABLE PROPERTY

Service tax initially included 3 services namely General Insurance, Stock broking & telephones, now the count has increased to 107 services.
Renting of immovable property was introduced as a service in the Union budget 2007-08 and is effective from 01 June 2007.

What is important to know is:
1. Meaning of Immovable property
2. Renting of immovable property
3. Scope of taxability

a. Immovable property
Explanation (1) to Section65 (105) (zzzz) states that immovable property includes
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,
But it excludes
 Land used for agriculture, aquaculture, farming, forestry
 Lands whether or not having facilities incidental to the use of such land
 Lands used for educational, sports, circus, entertainment, parking purposes
 Buildings used for residential purpose & for accommodation including hotels, hostels etc.
Note
Any property that is used for both residential and commercial purposes shall be deemed to use in course of business.

b. Renting of immovable property
Renting includes renting, letting, leasing, licensing, of property in furtherance of business or commerce. Thus renting of property to commercial training and coaching centers is also part of renting.

EXEMPTION is provided in case of renting to or by a religious body and also to an educational body.
Some important points and facts regarding renting of immovable property
1. The exemption up to limit of Rs.10 lakh is applicable. Thus where in aggregate the rental income exceeds Rs.10 lakh during the year the landlord will have to pay service tax.
2. The tax will be collected by the landlord from the tenants; this amount will be over and above house tax and other such taxes.
3. Such tax is chargeable only where immovable property is rented for furtherance of business or commerce i.e. commercial activities and not for dwelling purposes.
4. No CENVAT credit is allowed to the receiver of such service and the definition shall also include sub-letting of immovable property.
5. Only rent of building is taxable. Amount to be segregated by using valuation rules. If machinery is attached to earth it will be covered under renting of immovable property.
6. The situation of commercial renting of immovable property is different from renting of kalian mandap. In common parlance, renting of immovable property merely includes handing over of vacant possession of property, unless and until it has been decided amongst the parties that the landlord shall provide additional services or facilities. It is difficult to conceive what service is being rendered by landlords for mere renting of commercial vacant premises.
Service tax paid by the tenant doesn’t partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax.
Therefore, it could be safely assumed that the service tax on rentals is a tax imposed on the rental and lease services provided by the landlord and not a tax on the premises rented. Here only renting activity is the service.
7. Since TDS is chargeable on rent paid/payable, it is to be considered on what amount TDS is to be deducted. As per Circular 4/2008 and Sec 194 I of Income tax Act TDS should be deducted on amount of rent paid /payable and not amount of service tax.

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