Service tax on Rent security deposit

[Vivek anandhan]

We are providing rent service,  Service tax audit conducted in our premises,  They have raised audit point as below.

Audit Point - Valuation of service income - Suppression of Taxable Value of Service by not including the Value of Deposit received.

As per the above point they are asking service tax on Returnable security depoist amount received rom Lessee.

Whether we need to pay service tax as per the point,   any case in law is there related to the above issue.

Regards

Vivekanandhan

If  securiety is interest free than service tax may be ask on interest save on returnable securiety.

 

R K Rajwanshi

 

[Mahaganapathi V]

Sir

It is meaning less to demand service tax on refundable deposit. Service tax is applicable only on renting service and allied services on renting. Refundable interest free deposit is collected for many reasons like recovering the damages to the assets and appliances etc. Nothing can be demanded on the refundable deposit. However if the rent value is reduced and dposit is received to compensate the shortfall then there might be a chnace to demand service tax on the comparable market price prevailig in that area. No calculation towards the interest portion or direct charging of deposit portion under service tax etc would be lawfull.

[YAGAY and SUN]

No way, The Revenue Department cannot raise demand on Returnable Security Deposit. Further, if any outstanding rent is being adjusted from such security then the Revenue Department ask for payment of service tax on this portion, otherwise not.

AI Summary

Security deposit for rent not taxable unless treated as rent concession, adjusted against rent, or yields an interest benefit.
Refundable, interest-free security deposits taken as protection against damage or default are ordinarily not part of the taxable value of a renting service; however, tax exposure can arise if the deposit functions to reduce contractual rent, if it is adjusted against outstanding rent (making that portion taxable), or if an identifiable interest benefit from an interest-free deposit is treated as taxable consideration.