SERVICE TAX ON RENTING OF IMMOVABLE PROPERTY SERVICE

[VINOD KUMAR]

Dear Experts,

Good Evening to all.

Sir, One of my clients has taken a building on rent from a person in 2012-13. He is paying Rs. 1,00,000/- per month rent. As per his knowledge, the landlord has not paid any service tax on this amount. According to rent agreement, he has deliberately tried to evade the Service Tax because as per rent agreement the rented property is in the name of both his wife and son i.e. he has tried to split the rent of Rs. 12,00,000/- per annum in Rs. 6,00,000/- per person (perhaps to keep below the SSI limit of Rs. 10,00,000/- and to avoid the Service Tax).

Sir, Please guide whether he is right in doing so. Whether he is liable to pay the Service Tax. Whether I am liable to pay the service tax.

[PAWAN KUMAR]

Dear Sir,

As per my view, no such provision is available under the law to split the income into two parts for avoiding tax implications. In service tax, premises which involve for provisioning of service in case of renting of immovable property is important. The rent which the landlord charging to you is applicable for service tax. The liability for service tax in on the service provider in this case, therefore you need not to pay the service tax. The requirement for payment of service tax is on the land lord which has not being paid. If he is not paying, he may be penalized with huge amount of penalty.

[Rajagopalan Ranganathan]

Sir

If the property is inherited then each owner of the property can claim separate exemption. However, if the property is purchased jointly for providing renting services or for business purposes the turnover will be clubbed for purpose of exemption available to small service provider, as they will be considered as Association of Persons (AOP) or Body of Individuals (BOI).

The exemption limit for small service provider is a turnover of ₹ 10,00,000/- during previous financial year or the turnover is not likely to exceed ₹ 10,00,000/- during current financial year.

AI Summary

Service tax liability on renting of immovable property rests with the service provider, not the tenant. The document states that service tax on renting of immovable property is a tax on the provision of the service and the liability to pay rests with the service provider (landlord), not the tenant. It notes that separate owners with distinct inherited interests may claim exemption individually, while jointly operating co owners providing rental services may be treated as an Association of Persons or Body of Individuals and have their turnover clubbed for the small service provider exemption; artificial splitting to avoid tax is vulnerable to challenge.