Rent for commerciasl property

[Guest]

I have paid an amount to Muncipal Authorities for conversion of land use.

Can I claim deduction for this amt while computing my servicetax liability.

[KASTURI SETHI]

Sh.Chaudhary Ji,

No such deduction is admissible as these are charges not taxes, cess, duty etc.

[Ganeshan Kalyani]

What is conversion of land use?

[Guest]

Mr.Kalyani,

These are the taxes collected by Muncipal Corporation to allow you to use your residential property to commercial use & these charges are paid annually.

[KASTURI SETHI]

Sir,

These are called 'conversion charges' (as you also mentioned in your query) and hence cannot be termed as 'tax'. You can call this fee but not tax. This is my view. I am also waiting for views of Sh.Ganeshan Kalyani, Sir.

[Ganeshan Kalyani]

Sir, property tax paid is only allowed as deduction from the gross amount in case of rent received from renting of immovable property service. Thanks.

[KASTURI SETHI]

Yes Sir. I agree with you. But here the query is restricted to 'conversion charges' only.

[Ganeshan Kalyani]

Sir conversion charges is not deductible from gross amount for the purpose of calculating service tax liability. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes, Sir. I have already mentioned in my reply dated 16.5.2016.

[ashok singhee]

Land use conversion charges are normally one time affair and it is kind of Capital Expenditure.

[Guest]

Sir Kalyani ji & Singhee ji,

these charges are to be paid annually to Muncipal Corporation only.

[Guest]

If paid annually,how I can take it as one time charges & to Capital Exp[enditure?

[ashok singhee]

Shri Manjit ji,

My reply is based on the applicable laws in Rajasthan.As per prevalent law, for the change of land use, charges are collected once only by the JMC or JDA in their respective jurisdiction and is quite substantial sum.

AI Summary

Deductibility of conversion charges: municipal conversion fees are not deductible against service tax liability on rent. Conversion charges levied by municipal authorities for change of land use are treated as fees or municipal charges, not taxes, and therefore are not deductible from gross receipts when computing service tax liability for the renting of immovable property service; property tax, however, is an allowable deduction. Some contributors regard conversion charges as capital expenditure (often one time), but the querent reports annual payments-regardless, conversion charges do not qualify as deductible taxes for service tax purposes.