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 advance receipts: refundable security deposits are untaxed until appropriated to rent, then taxable.
Advance receipts that represent consideration for taxable renting services are subject to service tax; a refundable security deposit taken solely as a guarantee is not taxable on receipt but becomes taxable when appropriated or applied towards rent. Administrative practice may attempt to include rent deposits in gross value at receipt, but CBEC guidance in analogous cases treats initial refundable deposits as non-taxable until adjusted as service consideration.