Whether rental income is attract service tax,

[Asked by Guest]

Dear Sirs,

We are the group of companies having two plants in nearby distance with different registration, due to shortage of space one factory has given some ware space to another by preparing lease agreement on token amount as rent, this amount has been reflected in balance sheet as rental income, which is less than 2 lacs yearly,

Please advice whether the leassor factory is liable to pay service tax ? if yes then Leasee can take credit of this service tax ?.

Request to suggest your expert advice on this issue please.

Thank you,

Mitesh

[Rajagopalan Ranganathan]

Sir,

Since your annual rental income is less than 10 lakhs you need not pay any service tax as provided by Notification No. 33/2012-ST dated 20.6.2012.

[KASTURI SETHI]

Sh.Mitesh Gandhi Ji,

I support the views of Sh.Rajagopalan Ranganathan, Sir. It is also relevant to read the following clauses of Notification No.33/12-ST as amended.

"(vii) where a taxable service provider provides one or more taxable services from one or more premises, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each premises or each services; and

(viii) the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed ten lakh rupees in the preceding financial year.

3. For the purposes of determining aggregate value not exceeding ten lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency under section 67 of the said Finance Act for which the person liable for paying service tax is as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994, shall not be taken into account."

Rental Income is subject to Service tax under the classification of Renting of Immovable Property.

If the renting is for Residential Purpose it would fall under Negative list. Since it is for Commercial purpose, Service tax has to be levied.

Dear Sirs,

thanks for your reply, I would like to inform you that last year there was service tax more than 10 lacs, i.e FY 2014-15, and we had paid ST on Job work last year, and this rental income generated in FY 2015-16 we also have job work worth 2 lacs both to gather below 5 lacs, what would be the guidlines in this situation, Dept asking to pay ST.

thanks

Mitesh

[KASTURI SETHI]

If turnover during the preceding year is more than 10 lakhs, you are not eligible for. Threshold Exemption Limit next year.

[Ganeshan Kalyani]

I too agree with the views of Sri Rajagopalan Sir, Sri Kasturi Sir.

Further, balance sheet is prepared on all PAN India basis, so income disclosed on the credit side of the Profit and loss account is assumed as the income of all locations from wherever services would have been provided. If that is below the threshold limit then service tax is not applicable.

[YAGAY and SUN]

Threshold exemption limit is not based on Balance Sheet as there is no such provision in the Finance Act, 1994. This provision has been enshrined only in GST Laws.

[Ganeshan Kalyani]

But balance sheet is a record compiled for PAN India. It shows that how much revenue is earned during the year. The service tax audit team also asks for balance sheet for their desk review. Even trail balance is called by the auditor to identify the revenue heads. They most of the time levy tax based on balance sheet and trail balance. I have experienced it in practical. Hence my reply.

[YAGAY and SUN]

We do stick to our reply.

AI Summary

Taxability of commercial rent: commercial renting attracts service tax unless aggregate taxable services fall below exemption threshold.
Commercial renting of immovable property is taxable as Renting of Immovable Property, except when the provider's aggregate value of taxable services across all premises does not exceed the exemption threshold in the preceding year; the exemption applies to aggregate taxable services from all premises, and prior-year aggregate turnover (including other taxable activities) determines eligibility for the threshold exemption.