Renting of immovable property under service tax
Further, on analytical reading of heading of present declared service i.e. Renting of immovable property, it becomes clear that two words i.e. “ Renting” and “ Immovable property “ are of utmost importance.
Definitions of renting means “ 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.”
It may be noted that as per definition, allowing or permitting the usage of immovable property without transferring possession of such property is also renting of immovable property i.e. usage of a property for a temporary purpose like conduct of a marriage or any other social function is also covered under this service.
Immovable property for this purpose shall include building and part of building, and land appurtenant thereto, land incidental to the use of building or its part, common or shared areas and facilities relating thereto and in respect of buildings in a complex or industrial estate or any other building, all common areas and facilities within such complex or estate.
Any machinery attached or fastened to or embedded to earth becomes part of immovable property. However, if a machine is fixed by bolts, it does not become an immovable property but remain ‘goods’. Similarly, furniture fixed on ground by bolts, screw etc. are goods i.e., not an immovable property.
Renting of certain kinds of property 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 Reserve Bank of India
- Renting out of any property by a Government or a local authority to all non-business entity.
Renting of all other immovable properties would be taxable unless covered by an exemption. 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
No exemption has been provided in respect of renting of immovable property to any NGO, Trust or Government or Local Authority or a Governmental Authority
Liability under reverse charge
Wherever the service provider is located outside the taxable territory but the service is being provided in taxable territory, in terms of place of provision of services rules, 2012, the tax shall be payable by service receiver
Place of provision of service rules, 2012
As per rule 5 of the place of provision of service rules,2012, place of provision of ‘renting of immovable property services’ shall be the place where the immovable property is located, irrespective of where the provider or receiver is located.
Valuation of rent for service tax of immovable property
The ministry of finance vide Notification no. 29/2012-ST dated 20/06/2012 has granted the relief to the service providers providing service of renting of immovable property by allowing them the deduction of municipal taxes paid on such property. thus, the deduction has allowed only for the property tax collected by the local authority. If the property tax so paid also pertains to future or past period, in such a case only proportionate deduction pertaining to the relevant month or quarter shall be allowed.
If there is excess payment of service tax on account of non-availment of deduction of property tax paid then the service provider may adjust such excess amount paid against his service tax liability within one year from the date of payment of such property tax.
It has been clarified by way of proviso in the aforesaid notification, that such taxes shall not include any interest, penalty paid on account of delayed payment or any other reason.
Different situations under which service tax is chargeable or not
|S No.||Nature of Activity||Taxability|
|1||Renting of a property to a educational body||Exempted if provided to an educational body for the purpose of education which is exempt from the levy of service tax|
|2||Renting of a vacant land for animal husbandry or floriculture||Not chargeable to service tax ( covered under negative list )|
|3||Permitting use of immovable property for placing vending/dispensing machines||Chargeable to service tax as permitting usage of space is covered in the definition of renting|
|4||Allowing erection of communication tower on a building for consideration||Chargeable to service tax as permitting usage of space is covered in the definition of renting|
|5||Renting of land or building for entertainment purpose||Chargeable to service tax as there is no specific exemption|
|6||Renting of theatres by owners to film distributors||Chargeable to service tax as the arrangement amounts to renting of immovable property.|