SERVICE TAX ON RENTING OF IMMOVABLE PROPERTIES

[abbas mukhi]

SIR,

OUR ORGANIZATION IS PROVIDING LAND ON RENT (SOMETIMES RENT ARE NOMINAL OR FAR BELOW MARKET RENT) FOR UNDER MENTIONED PURPOSES.

1. RELIGIOUS PURPOSE

2. FOR SCHOOLS

3. HOSPITALS

4. PUBLIC GARDEN ETC.

5. SOCIAL AND CULTURAL ACTIVITIES

6. VARIOUS FARES AND EXHIBITION FOR SHORT TERM PERIOD

7. TO GOVERNMENT FOR VARIOUS PURPOSE

8. RESIDENTIAL PURPOSE

9. COMMERCIAL PURPOSE

STATUS OF OUR ORGANIZATION IS AUTONOMOUS BODY/BODY CORPORATE

PLEASE GUIDE US ON LIABILITY OF SERVICE TAX FOR LAND GIVEN FOR ABOVE MENTIONED PURPOSE.

THANKS

[venkatesh B]

Renting of immovable Property is a Declared Service and Service Tax is Applicable

In case of Precincts Given for rent to Religious purpose meant for General public - Not in negative list but Exempted

Renting of property to an exempted Educational institutions is not chargeable to tax, and in case of hospitals and Gardens it is not specifically exempted form service tax and the same for renting for Social and Cultural activities and Exhibitions.

Renting of property by government for non business activity is not chargeable to tax but Renting of property to government is not in negative list.

Property given on rent for residential purpose is not chargeable to tax, but residential property given for commercial purpose is chargeable to tax and Renting for Commercial purpose is chargeable to tax.

[KASTURI SETHI]

Dear Sh.Abbas Mukhi,

Service wise my views are as under:-

1.Religious purpose Exempted Notification No.25/12-ST dated 20.6.2012 Serial No.5(a)

2. Schools Taxable Notification No.6/14-ST dated 11.7.14

3. Hospital Exempted Notification No.25/12-ST dated 20.6.2012 as amended

4. Public Garden Taxable Other Than Negative (Before 1.7.12 under Interior Decorators Service)

5. Social & cultural Activities Taxable Other Than Negative

6. Fares and exhibition Taxable -------DO-----------

7. To Govt. for various purpose Taxable

8. Residential purpose Exempted Negative List (If residential used for business then taxable)

9. Commercial purpose Taxable

I have made all-out efforts to give updated information. I also expect views of other experts.

[KASTURI SETHI]

With reference to my reply dated 12.12.2015, I add that religious fairs like Maghi Mela, Diwali Mela, Holi Mela etc. are exempted from Service Tax but other fairs like Book Fair, Tech. Fair, Job Fair etc. are taxable.

[abbas mukhi]

Thanks sir, Whether renting to Hospital is exempt !!

[KASTURI SETHI]

Sh.Abbas Mukhi Ji,

Re-examined the whole issue. Renting to hospital is not exempt. Inconvenience caused is regretted.

[Ganeshan Kalyani]

In the same subject line I would like to discuss that office premises given in rent is taxable under 'renting of immovable property' category. If suppose along with office premises chairs, furniture, tube lights etc is also given on rent then whether it is taxable under the same taxable category or is not taxable. Please discuss.

[KASTURI SETHI]

Sh.Ganeshan Kalyani ji,

Sir, chairs, furniture, tube lights etc. are not immovable property. Hence out of definition this service. I think so. What is your response on this aspect ?

[Ganeshan Kalyani]

Though furniture is not immovable property the rent charged by the service provider includes the charges of using the amenities like furniture, air conditioner etc in the rent amount so charged on the recipient of the service. I have read an article where the office rent is charged separately under separate agreement and it is offered for tax. And charges for amenities like furniture, air conditioner etc are collected separately and it is taxed under VAT. This is so because there is a provision under VAT Act called deemed sale, where it is provided that the owner and possession is transferred and therefore it is a deemed sale and VAT should be levied. Thus in my opinion if service provider does an agreement separately for rent and amenities then service tax and VAT will be levied. And if does one agreement for both rent and amenities together then only service tax is leviable as there is no value rule to segregate the consideration into rent amount and charges for amenities. This is my views. I expect to share your views as well.

[KASTURI SETHI]

Sir,

I subscribe to your views entirely but I would like to express my views in somewhat different way. Sometimes it is seen that well furnished houses/office premises are rented out under one agreement and contracted amount is inclusive of the rent on furniture, A.C. fans etc.Major amount of rent pertains to the office building.In such case the Service Provider is unable to segregate the gross amount of rent for building and furniture,A.C.etc. separately. In case the assessee cannot segregate, he is liable to pay Service Tax on the consolidated amount of rent received. If the assessee is able to provide separate figures(consideration) for office building and furniture, A.C.,fans etc., rent received on account of these goods/items is not liable to Service Tax. The whole scenario revolves around 'Segregation'. Practically, the department accepts the payment of VAT as documentary evidence to the effect that it is a sale and not service. If VAT is paid, it is not service. If the VAT department charges VAT on deemed sale, Service Tax shall not be leviable on that value on which on VAT has been paid. In other words payment VAT helps in segregation.I hope now the concept is clear.

[Ganeshan Kalyani]

Yes sir it is now crystal clear. Thanks for sharing your views.

[Atul Gupta]

Dear Sh. Sethi,

Kindly clarify who is responsible for Payment of Service Tax to the Government Account . Wheather It is a Service Provider i.e Landlord or Service Receiver i.e Tenant.

As my Organisation has taken Hospital Building on Rent and it is the impression at the time of Finalisation of Rent deed that Rent includes everything but subject to deduction of TDS.

Further the Landlord has not yet Raised and claimed the Service Tax from Tenant since the starting of Lease Agreement .

Kindly give your views wheather Tenant is Compulsory Liable for Payment of Service Tax to Landlord or It is the Landlord who is responsible to Pay Service Tax from the amount of Rent received by him. Kindly also mention Circular no. if any.

Thanks & Regards,

Atul Gupta

[KASTURI SETHI]

Sh.Atul Gupta Ji,

As per Section 68(1) of the Finance Act, 1994, it is a statutory duty of Service Provider to collect Service Tax from the recipient of the service and deposit into Govt. account. It is SP's responsibilities to perform all legal formalities. You are not responsible for that. This service is not under RCM but as per Rule 5 of POPS Rules, 2012, the place of provision shall be the place where property is located and thus if SP is located outside the taxable territory, SR is located in taxable territory, ST shall be paid by the recipient of service in that situation. Service Tax is to be paid on the amount of TDS. TDS is a component of gross receipt.

Landlord cannot execute rent deed/lease deed in violation of Service Tax law. I mean to say landlord cannot shift his liability upon the tenant by way of agreement. It appears that landlord (SP) and Tenant (SR) both are in taxable territory. So you (tenant) should be tension free. If agreement is of such nature (terms and conditions) that rent is inclusive of ST, the amount of rent will be treated as cum-tax value in terms of Section 67 (2) of the Finance Act.

If the landlord has not raised the bill so far, it is his headache. You r not to worry.

[Atul Gupta]

Thanks for your Reply SH. Sethi Sir,

But now the question arises whether Landlord ( SP ) can file civil suit to recover the service tax from Tenant ( SR ) as Rent Deed is silent on service tax matter and if ( SP ) files the Civil suit for recovery of Service Tax from ( SR ) what are the chances in favour of ( SR ).

Whether there is/are any Court decision ( s ) in this respect.

Thanks once again,

Atul Gupta

[Ganeshan Kalyani]

Sir, this is totally depends upon the terms and conditions of the Agreement about Service Tax liability and the Consideration clause. If the consideration as mentioned in the agreement is all inclusive then the SP is liable to pay tax within the Rent amount received by him. Otherwise he will collect it from SR and pay it to the Gvt.

Further did he raised any invoice for collection of Rent? As per Rule the SP is required to mention the applicable service tax component on the face of the invoice along with the other essential informations. He is also obligated to mention his Service tax registration number on the face of the invoice. Otherwise how the SR who is paying service tax amount to SP would come to know that the tax collected by the SP is actually paid to the Gvt. You can argue on these grounds. Thanks.

[KASTURI SETHI]

Sh.Atul Gupta Ji,

Read your cross query today. Sh.Ganeshan Kalyani, Sir is totally right in his observations. Before taking decision it is an absolutely must to go through terms and conditions of the agreement.Nothing more to intervene in his reply. He has covered all aspects. If still there is any doubt, you are welcome on this forum.

[VEMULA CHANDRASEKHAR]

DEAR SIR

Today I have got a notice From service tax department to one of my client where the property is let out for commercial purpose. Husband, Wife and Son are the Co owners for the property. As per the rental agreement the share of rental income belongs to wife is crossing Rs. 10 lakhs and Share of Son and husband not crossing Rs.10 lakhs hence they are not paying service tax.

Now the department says three people letting the property to one tenant is nothing but AOP and the total rent including son and husband share also need to be taxed treating the transaction as transaction of AOP .

Notice issued accordingly.

Kindly guide in this regard

AI Summary

Renting of immovable property: taxability turns on use, provider obligation to collect, and segregation of amenities. Renting of immovable property is a declared taxable service subject to specified exemptions; residential use is generally exempt while commercial use is taxable. Liability to collect and remit service tax normally lies with the service provider, and place of provision is the property's location; where the provider cannot segregate consideration for movable amenities, the consolidated rent is liable to service tax, but segregated charges subjected to deemed sale and VAT may not be taxable as service.