SERVICE TAX RENTING OF IMMOVEABLE PROPERTY PROVISIONS WEF 01.07.2012

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 What is the meaning of ‘immoveable property’?

‘Immoveable property’ has not been defined in the Act. Therefore, the definition of ‘immoveable property as given in clause (26) of the General Clauses Act, 1897 has to be taken as per which “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.

Covered in declared services :In the definition of ‘service’ contained in clause (44) of section 65B of the Act it has also been stated that service includes a declared service. The phrase ‘declared service’ is also defined in the said section as an activity carried out by a person for another for consideration and specified in section 66E of the Act. The following nine activities have been specified in section 66E:

1. renting of immovable property;
2. construction ............"


Renting of Immovable Property

Renting has been defined in section 65B as ‘‘allowing, permitting or granting access, entry,occupation, usage 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’


Is renting of all kinds of immovable properties taxable?

No. Renting of certain kinds of immovable properties is specified in the negative list. These are –
  • 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 the Reserve Bank of India 
  • renting out of any property by a Government or a local authority to a non-business entity.
  • Renting of all other immovable properties would be taxable unless covered by an exemption as given below.
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Are there any exemptions in respect of renting of immovable property?

Yes. These are:–
  • Threshold level exemption up to Rs. 10 lakh.
  • 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
Following is text of Mega exemption Notification(negative list) in which Renting to immoveable property appears.

5. Services by a person by way of-
(a) renting of precincts of a religious place meant for general public; or
(b) conduct of any religious ceremony;
9. Services provided to or by an educational institution in respect of education exempted from service tax, by way of,-
(a) auxiliary educational services; or
(b) renting of immovable property;


18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent;

“declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit;

Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function be taxable?

Yes.  As per definition allowing or permitting usage of immovable property, without transferring possession of such property, is also renting of immoveable property.

Would activities referred to in column 1 of a table below be chargeable to service tax?
1
2
If……
Then……
  • a residential house taken on rent is used only or predominantly for commercial or non-residential use.
  • the renting transaction is not covered in this negative list entry.
  • if a house is given on rent and the same is used as a hotel or a lodge
  • the renting transaction is not covered in this negative list entry because the person taking it on rent is using it for a commercial purpose.
  • rooms in a hotel or a lodge are let out whether or not for temporary stay

  •  the renting transaction is not covered in this negative list entry because a hotel or a lodge is not a residential dwelling.
  • government department allots houses to its employees and charges a license fee
  • such service would be covered in the negative list entry relating to services provided by government and hence nontaxable.
  • furnished flats given on rent for temporary stay
  • these are in the nature of lodges or guest houses and hence not treatable as a residential dwelling
Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business or cultural functions fall within the scope of this declared list service?

Halls, rooms etc. let out by hotels/restaurants for a consideration for organizing social, official or business or cultural functions are covered within the scope of renting of immovable property and would be taxable if other elements of taxability are present.

Would a  department of the Government need to get itself registered for providing  the services of renting a immoveable property. 

For the support services provided by the Government, other than where such support services are by way of renting of immovable property, to business entities government departments will not have to get registered because service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism in terms of the provisions of section 68 of the Act and the notification issued under the said section as well Service Tax Rules, 1994. For services  mentioned at (a) to (c) of the list

a) services provided by the Department of Posts  by way of speed post, express parcel post, life insurance, and agency services carried out on payment of commission on non government business;
b) services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport;
c) transport of goods and/or passengers;

and renting of immovable properties the tax will be payable by the concerned department.

Are renting of Immoveable property services provided to or by educational institutions is exempted?

yes. Such services are separately exempted under the mega notification. These are services provided to or by an educational institution in respect of education exempted from service tax, by way of,-

(a) auxiliary educational services; or
(b) renting of immovable property

Services by way of renting of residential dwelling for use as residence

‘Renting’ has been defined in section 65B as ‘‘allowing, permitting or granting access, entry, occupation, usageor 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’.

What is a ‘residential dwelling’?

The phrase ‘residential dwelling’ has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp–site, lodge, house boat, or like places meant for temporary stay.

Would the nature of renting transactions explained in column 1 of the table below be covered in this negative list entry?


Is renting of precincts of a religious place taxable?

Yes. However, exemption is available only if the place is meant for general public. General public is also defined in the mega notification 25/2012-ST as ‘body of people at large sufficiently defined by some common quality of public or impersonal nature’.

I have taken on rent a piece of vacant land from its owner. The land will be used for providing the facility of vehicles parking on payment. What is my service tax liability?

You are not required to pay tax on providing the facility of vehicle parking to general public. However, if you are providing the facility of parking of vehicles to a car dealer, you are be required to pay tax as parking facility is not for general public. Moreover, land owner is liable to pay service tax on renting of his land to you.



Would renting of a residential dwelling which is for use partly as a residence and partly for non residential purpose like an office of a lawyer or the clinic of a doctor be covered under this entry?

This would also be a case of bundled services as renting service is being provided both for residential use and for non residential use. Taxability of such bundled services has to be determined in terms of the principles laid down in section 66F of the Act.


Services which are not naturally bundled in the ordinary course of business The rule is – ‘If various elements of a bundled service are not naturally bundled in the ordinary course  of business, it shall be treated as provision of a service which attracts the highest amount of service tax.’

Illustrations:
A house is given on rent one floor of which is to be used as residence and the other for housing a  printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

Compensation from tenant for damages not covered : In case a landlord who has rented out his office building to a tenant receives compensation from the tenant for the damage caused to the building by an unforeseen action then such compensation would not form part of the value of taxable service related to tenant of his building as an unforeseen damage caused by the tenant is not relatable to provision of service of renting of the office building.

Is there any change in accounting code for deposit of service tax for renting of immoveable servicers after 01.07.2012 ?

Yes , Now same code (one code) has been provided to deposit services tax on all taxable services wef 01.07.2012. Though arrears of old services (before 01.7.2012) is to be deposited in old respective codes of services.

So like other services new code for service tax deposit for renting of immoveable property is

Name of Services
Accounting codes
Tax collection
Other Receipts
Penalties
Deduct refunds
All Taxable Services
00441089
00441090
00441093
00441094






(ii) Primary Education Cess on all taxable services will be booked under 00440298 and Secondary and Higher Education Cess on all taxable services will be booked under 00440426;

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