Renting of Immovable Property Services

  • Services in relation to renting of immovable property were brought within the purview of service tax from 1-6-2007. Renting has been defined in section 65B(41) as ‘‘allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property’.

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  • Important Definition

  • Section 65B(41): “renting” means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession of control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property”.Section 3(26) of General Clauses Act, 1897: “Immovable Property” shall include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to earth or permanently fastened to anything attached to earth.Section 2(6) of Registration Act, 1908: “Immovable Property” includes any land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit arising out of land, and things attached to earth but does not include standing timber, growing crops or grass.

  • Accounting codes

Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:

Tax Collection of Service Interest and penalties on such service
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  • Provision relating to Negative List

Section 66D specifies following services as non-taxable:

  1. Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use.
  2. Services by way of renting of residential dwelling for use as residence.

  • Provisions relating to exemptions

  1. General Exemption
  • Small Service Provider

Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

  • Import of Technology

Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986. 

  • To Foreign Diplomatic missions and their personnel

Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

  • Services by TBI or STEP

Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

  • Services provided to SEZ

Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

  1. Specific Exemptions

Notification No. 25/2012-ST dated 20-6-2012 provides for following exemption for service of renting of immovable property:

  • Renting of precincts of a religious place meant for general public.
  • Upto July 11, 2104, Service of renting of immovable property to or by an educational institution in respect of education exempted from service tax.
  • Services by way of renting of hotel, inn, guest house, etc.

No exemption has been provided in respect of renting of immovable property to any NGO, Trusts or Government or Local Property or a Governmental Authority.

Vide Notification No. 29/2012- Service Tax dated June 20, 2012, exemption has been provided to the taxable service of renting of an immovable property to the extent of taxes on such property, namely property tax levied and collected by local bodies.  However, exemption is subject to the following conditions:

  • Any amount such as interest, penalty paid to the local authority by the service provider on account of delayed payment of property tax or any other reasons shall not be treated as property tax.
  • Wherever the period for which property tax paid is different from the period for which service tax is paid or payable, property tax proportionate to the period for which service tax is paid or payable shall be calculated and the amount so calculated shall be excluded from the gross amount charged for renting of the immovable property for the said period, for the purposes of levy of service tax.

Example:

Property tax paid for April to September = Rs. 12,000/-

Rent received for April               = Rs. 1, 00,000/-

Service tax payable for April     = Rs. 98,000/- (1, 00,000 -12,000/6) * applicable rate of service tax

  • Provisions relating to Valuation and Abatement

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which service tax should be levied.

In respect of Renting of immovable property services, no specific provision for determination of taxable value has been provided. However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Renting of Immovable property services is to be determined in terms of provision of Section 67 read with the prescribed rules.

  • Provisions relating to Cenvat Credit

The Credit is available to the service provider in respect of the duty or tax paid on Capital Goods, inputs and input services.

  • Provisions relating to point of taxation

  1. In the case of Renting of Immovable Property, normally, agreement is entered into between the provider and receiver of service for the purpose of providing immovable property on rent, lease, license etc. The agreement invariably specifies the amount payable by the service receiver. The amount is normally payable on monthly basis and the date on which the payment shall be made by the service receiver is also specified in the agreement on the specified date. If the period of providing the service is more than 3 months, it will be considered as continuous service as defined in rule 2(c) of Point of Taxation Rules, 2011. Accordingly, proviso to rule 3 of Point of Taxation Rules will apply for determining date of the completion of service.

  • Provisions relating to Place of Provision of Service Rules, 2012

The Place of Provision of Service Rules, 2012 contains different rules for different nature of services. Since renting services are required to be performed in relation to immovable property, Rule 5 of Place of Provision Rules, 2012 is relevant for this category of service is as follows:

Rule 5:   The place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located.

Thus if the property is located within taxable territory, services shall be taxable, else not.

  • Provisions relating to reverse charge

Renting of Immovable Property services is not included under the mechanism of Reverse Charge. Hence, the person providing the service shall be the person liable to pay service tax.

  •  Other Important aspects

Where the person liable to pay service tax in respect of service of renting of immovable property has paid to the credit of Central Government:

  1. Any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, on the account of non-availment of this exemption for the said period at the time of payment of service tax,
  2. The assesse may adjust such an excess amount paid by him against his service tax liability within one year from the date of payment of such property tax, and
  3. The details of such adjustment shall be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of 15 days from the date of such adjustment.

 

 

Departmental Clarification

Department vide its Educational Guide dated 20.06.2012 has clarified the service which is as follows:

  • Is renting of all kinds of immovable properties taxable?

No. Renting of certain kinds of immovable properties is specified in the negative list. These are –

  • renting of vacant land, with or without a structure incidental to its use, relating to agriculture. (Sl. no. (d) (iv) of ExhibitA1)
  • renting of residential dwelling for use as residence (Sl. No. (m) of ExhibitA1)
  • renting out of any property by the Reserve Bank of India
  • renting out of any property by a Government or a local authority to a non-business entity.

Renting of all other immovable properties would be taxable unless covered by an exemption.

  • Are there any exemptions in respect of renting of immovable property?

Yes. These are:–

  • Threshold level exemption up to Rs. 10 lakh.
  • Renting of precincts of a religious place meant for general public.
    • Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent.
    • Renting to an exempt educational institution
  • Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function be taxable?

Yes. As per definition allowing or permitting usage of immovable property, without transferring possession of such property, is also renting of immoveable property.

  • Would activities referred to in column 1 of a table below be chargeable to service tax?
S. No. Nature of Activity Taxability
1. Renting of property to an educational body Exempted if provided to an educational institution for the purpose of education which is exempt from the levy of service tax; to others will be taxable.

 

2. Renting of vacant land for animal husbandry or floriculture

 

Not chargeable to service tax as it is covered in the negative list entry relating to agriculture

 

3. Permitting use of immoveable property for placing vending/dispensing machines

 

Chargeable to service tax as permitting usage of space is covered in the definition of renting

 

4. Allowing erection of a communication tower on a building for consideration.

 

Chargeable to service tax as permitting usage of space is covered in the definition of renting

 

5. Renting of land or building for entertainment or sports

 

Chargeable to service tax as there is no specific exemption.

 

6. Renting of theatres by owners to film distributors (including under a profit sharing arrangement)

 

Chargeable to service tax as the arrangement amounts to renting of immovable property.

 

  • Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business or cultural functions fall within the scope of this declared list service?

Halls, rooms etc. let out by hotels/restaurants for a consideration for organizing social, official or business or cultural functions are covered within the scope of renting of immovable property and would be taxable if other elements of taxability are present.

Case Laws

 

  • In the case of K D Chaudhary v. Commissioner of Service tax, Ahmedabad [2012] 26 taxmann.com 339 (Ahd. – CESTAT), it was held that In case of a co-owned property, where all assessee co-owners rent out such property separately to a person, prima facie, rent received by each such co-owner is to be considered separately for threshold exemption of Rs. 10 lakhs.

 

  • In the case of Dinesh K. Patwa v. Commissioner of Service Tax [2012] 25 taxmann.com 515 (Ahd. – CESTAT), it was held that in case of a co-owned property, where all assessee co-owners rent out such property separately to a person, prima facie, rent received by each such co-owner is to be considered separately for threshold exemption of Rs. 10 lakhs.

 

  • In the case of Purshottam Das Malpani v. Union of India [2012] 23 taxmann.com 175 (Raj.), it was held that amendment made to section 65(105)(zzzz) by Finance Act, 2010 to include renting of immovable property or any other service in relation thereto in taxable service is within legistative competence of parliament; it is clarificatory and hence, retrospective in operation.

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By | 2017-04-07T13:16:40+00:00 September 19th, 2016|Service Wise Implications|

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