Applicability of service tax on rent deposit

[ranganath shenoy]

Assuming but not admitting service tax levy on renting of immovable properties,can department also levy tax on rentdeposit/lease deposit,which is a liability to be returned back to the lessee.This part of the country,they have started roping it in GROSS VALUE definition

[Rama Krishana]

Any amount collected towards taxable services provided or to be provided are subject to service tax. Therefore, if you receive any amount in advance towards taxable services shall also be subject to service tax and you have to pay service tax. On the other side, if an amount is not representing any taxable service, the same can not be subject to tax. The amount of security deposit for security of premises can not be held as towards taxable service of renting. Yes, when you would appropriate the same towards rent, the same would constitute as subject to service tax. The similar issues were arouse in relation to initial security deposit for obtaining telephone connection. CBEC had clarified that service tax is not payable at initial security deposit but service tax is payable at the time of adjustment thereof.

[RAKESH SRIVASTAVA]

Mr Shenoy, The Department can levy tax on Rent Deposit or Lease Deposit because the main purposes of these deposit is to safe guard rent incase it unpaid by tenant.

AI Summary

Service Tax on Rent Deposits: Not Applicable Unless Used as Rent; Similar to Security Deposits for Phone Connections. A query was raised about the applicability of service tax on rent deposits or lease deposits, which are typically refundable to the lessee. One respondent clarified that service tax applies to amounts collected for taxable services, including advance payments. However, a security deposit for premises, not representing a taxable service, is not subject to service tax unless appropriated as rent. Another respondent mentioned that the Department might levy tax on such deposits as they serve to safeguard against unpaid rent. The discussion referenced similar issues with initial security deposits for telephone connections, where tax is payable upon adjustment.