Renting of Residential Dwellings Services

  • 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”.The expression “residential dwelling” is not defined in the Act. Therefore, the meaning of expression ‘residential dwelling’ has to be understood in terms of the normal trade parlance. It means any residential accommodation, but does not include hotel, motel, inn, guest house, campsite, lodge, house boat, or like places meant for temporary stay.

  • Taxability

Renting of Residential Dwelling services are non-taxable services provided;

  1. The services must be of renting
  2. Renting must be of Residential Dwelling
  3. Residential Dwelling must be used as residence

  • Provision relating to Negative List

Section 66D in clauses (a) to (q) specify certain services on which no tax is payable under section 66B. Clause (m) of section 66D specifies renting of residential dwellings as non-taxable service. Clause (m) of section 66D reads as follows:

                    “(m) 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.

  • 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 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 Exemption

No specific exemption has been granted by the government in case of Renting of Residential dwelling services.

  • Provisions relating to Valuation and Abatement

The services discussed are specified in the negative list. Hence, they are not liable for payment of service tax. Therefore, if the services provider is engaged in providing only such services which are specified in negative list, the question of determination of value is of no relevance.

However, if he is engaged in providing services which are non-taxable and which are taxable, the value is required to be determined for complying with the provisions of rule 6 of the Cenvat Credit Rules.

  • Provisions relating to Cenvat Credit

The provisions relating to availment of Cenvat Credit are discussed below:

  1. Services are considered as exempt service under Cenvat Credit Rules

The definition of exempt service is provided under rule 2(e) of the Cenvat Credit Rules, 2004. It reads as follows:

(e) “exempted service” means a-

(1) taxable service which is exempt from the whole of the service tax leviable  thereon; or

(2) service, on which no service tax is leviable under section 66B of the Finance Act; or

(3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken;

but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.

Clause (2) of the definition considers the service on which no service tax is payable under section 66B of the Finance Act as an exempt service. As mentioned above, under section 66B, no tax is leviable on the services which are specified in negative list. Hence, these services will be considered as exempt service.

  1. Non-availment of Cenvat Credit on provision of service which are not taxable

Rule 6(1) of the Cenvat Credit Rules, 2004 provides that the provider of output service is not entitled to take credit of duty paid on inputs or service tax paid on input services which are used in providing the exempted output services. Thus, to the extent output services are exempt from the payment of service tax, the credit of duty paid on inputs and service tax paid on the input services used therein will not be available. Hence, service provider providing this service will not be entitled to credit on input or input services used in providing such service.

  • Provisions relating to point of taxation

  1. The Point of taxation, 2011 make provision for determination of time when the tax is payable. In this case, as mentioned above, the services are not taxable. Hence, no tax is payable on the services of renting of residential dwelling. Therefore, the provisions relating to Point of taxations for these services are not of much importance.

  • 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 residential dwelling services is not included under the mechanism of Reverse Charge.

  •  Other Important aspects

Leasing of parking space not exempt

As per Entry No. 24 of Notification No. 25/2012-ST, services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility are exempt.

Thus, renting of space for vehicle parking is not exempt.


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