Service Tax on Renting of Immovable Property

[R MUTHURAJ]

Hi,

An Individual has an apartment containing 5 Flats meant for residential purpose. He is collecting Rs.6 lacs p.a as rent from each flat and in total Rs.30 lacs.

1 Flat is rented for running office and rest of the 4 Flats are residential.

In this case whether service tax is needs to paid?

What would be the case, the 1 Flat used for running office had been used as the Guest House of the Company?

Seeking experts opinion.

Thanks & Regards,

R.Muthuraj

 

[PAWAN KUMAR]

As per my view, service tax is to be levied on rent received towards one flat being used as guest house.

Remaining rent received towards four flats fall under negative list as per 66D (m).

 

[Rajesh Sharma]

Here is the answer of your query, which has been elaborated under bundled service and the  illustration  is as under:

 

 •  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.

Hope that will solve your query.

[MANDAVILLI RAMAKRISHNA]

separate lease deed to be entered into.

only commercial rents are taxable subject to threshold limit

residential purpose rents are not taxable ( the plan of the building

should also be a residential one and not a commercial building plan

as precuation

AI Summary

Service tax on commercial renting may extend to bundled residential tenancies where a single lease covers mixed use. Service tax does not apply to bona fide residential rents under the negative list, while rents for non-residential or guest-house use are taxable subject to thresholds. If a single lease bundles residential and commercial uses, the whole receipt may be characterised by the highest-liability component (commercial renting). Advisable measures include separate lease deeds and ensuring the building plan reflects residential use for exempt units.