Liability - Let out Commercial property

[Guest]

Company ‘X’ is let out Commercial Property to Company ‘Y’. From 11-05-2007 onwards, the service tax will be applicable. However the Company ‘X’ received the rent for the year 2007-08 in advance on 15/04/2007. Will there any tax liability? In my view, It can not dispute that there is no tax liability at the time of receipt of money. The provision of Service is the incidence of liability of tax. Service tax will be applicable on the service provided from 11-05-2007. Is it Correct?

[Surender Gupta]

Service tax on rental activities did not come into force w.e.f. 11-05-2006. Most likely it would come into force w.e.f. 1-6-2007. For advance received, I would suggest, you may wait for few more days, there may be some clarification from the department.

[Brijesh Verma]

Dear Mr. Raveendran, Good to read your view. Well just wanted to add some more spice in my Elder Brother Shri Surendra Ji's views. It is true that as of now there is no liability to tax under the captioned category of service. However, as far as advances are concerned, apart from waiting for any clarification you must also make clear to your client the fact that there are huge probabilities of tax being imposed on a proportionate basis on the rentals pertaining to such period which might get covered under the net.

AI Summary

Service tax on rental services may apply only for service periods after the effective date, but advances risk proportionate tax. The central point is that service tax liability attaches to the service provided from the statutory effective date, so advance rent received before that date is prima facie not taxable; however, there is a material risk that tax authorities may seek tax on a proportionate basis for the portion of the advance payment covering periods on or after the effective date, and stakeholders should await departmental clarification or be advised of that contingency.