Sunday, January 11, 2009

SERVICE TAX ON RENT/IMMOVABLE PROPERTY SERVICES PROVISIONS


on Sunday, January 11, 2009

READ CHANGES IN BUDGET 2010 ABOUT RENTING OF IMMOVABLE PROPERTY
RENTING OF IMMOVABLE PROPERTY SERVICE [section 65(105)(zzzz)]

  • Applicable w.e.f. 01.06.2007
  • Tax Rate is 12 plus cess 3 % on rate = Total rate = 12.36 %

 SCOPE OF SERVICE

  • “taxable service” means any Service provided or to be provided(zzzz) to any person,
  • by any other person
  • in relation to renting of immovable property
  • for use in the course or furtherance of business or commerce.

Explanation 1.—“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 does not include-

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2.—Partly used for residential purposes to be treated as used for business of commerce.

READ CHANGES IN BUDGET 2010 ABOUT RENTING OF IMMOVABLE PROPERTY
Renting of Immovable property defined

‘(90a) “renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include —
RENTING OF IMMOVABLE PROPERTY SERVICE [section 65(105)(zzzz)]

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

Use in the course or furtherance of business or commerce Defined

Explanation.—For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theaters, exhibition halls and multiple-use buildings;

Exemption for Property Tax Actually Paid
 (Notification No. 24/2007 dated 22/05/2007 w.e.f. 01/06/2007)
  • Only property tax paid not interest or penalty paid.
  • Exemption Allowed only when actual payment made.
  • Allowed only for corresponding month/quarter.
  • Rule 6(4C) of service tax rules inserted to allow adjustment of excess service tax paid if property tax is paid later.
  • Recalculate the earlier service tax paid by deducting property tax and calculate the excess tax paid.
  • Adjustment can be made within one year from the date of payment of property tax.
  • Intimation to the Superintendent of such adjustment is required within 15 days from such adjustment.

Other Exemptions
  • Services provided UN and International agencies.
  • Services provided to SEZ and SEZ developers
  • Export of service.
  • Services provided to foreign diplomatic missions and family members thereof.
Issues Involved

• Constitutional Issue-This is a kind of an activity for which it is very difficult for a common man to understand that how the simple activity of renting out a premises become a service chargeable to service tax. It is a transfer of right to use of Immovable property.

  • Tax on Lands and buildings- Entry 49 of State List (List-II)(it is a tax on use of building and not on building)
  • Service tax – Entry 97 of Union List (List-I)

  •  The most sufferer of this service would be the various Departments of Central and State Government itself. Further, this service makes a big hole in the pocket of the service receivers who are unable to get the benefit of Cenvat Credit.

Weather Sub-Letting of Immovable property is covered under this service

  • Section 65(90a) does not talk about ownership and is a Inclusive Definition.

 Weather general exemption of Rs. 10 Lakhs is available

  • If it is only service, Yes. Even if rent received in the year 2006-07 or even up to 31/05/2007 is more than 10 lakhs.
  • Notification No. 06/2005 talks about only taxable services.
 Joint Ownership – exemption of 10 Lakhs

  • Two different service providers cannot be clubbed.
  • Another view is that it is a single service and total rent of whole premises considered for 10 lakhs limit.
  • If it is true why if one assessee is providing two different services below 10 lakhs are clubbed.
  • In my opinion separate exemption limit is available to each of the owner.

Consolidated agreement for building and Plant & Machinery


  • Only Rent of Building is taxable.
  • Amount to be segregated by using valuation rules.
  • If machinery is attached to earth it will be covered.

Advance rent received before 01/06/2007

  • Will be taxable for service provided on or after 01.06.2007.
  • Taxable event is provision of service and not receipt of payment.
  • Arrears of rent relating to period prior to 01/06/2007 received on or after 01/06/2007 ,Not taxable, because service was not taxable for that period.Clarified in second proviso to rule 6(1)
where to take registration, weather at the address of HO/Regd Office or at the address of premises.

  •  If more than one premises where to take registration or apply for centralized registration.
READ CHANGES IN BUDGET 2010 ABOUT RENTING OF IMMOVABLE PROPERTY

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  1. Respected Sir,
    Whether Rent received and Rent paid on buildings and of Cellphone towers attracts Service Tax. If so what are the conditions sir!.

    ReplyDelete
  2. respected sir,
    Whether Rent received /paid towards buildings, Cellphone Towers attract Service Tax. Any conditions are there ? Please explain sir!.

    ReplyDelete