service tax on renting of immovable property

1.      Renting of immovable property

1.1.     Definition of renting:
As per section 65B(41),
‘renting’ means 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.

1.2.     Declared service:
As per section 66E (a) of the act, renting of immovable property would constitute as declared service.
As per Guidance notes on service tax issued by CBEC on 20^th June, 2012, Renting of immovable property taxable in following cases:
·         Renting of Permitting use of immovable property for placing vending/ dispensing machine
·         allowing erection of a communication tower on a building for consideration
·         Renting of land or building for entertainment or sports
·         renting of theaters by owners to film distributors (including under a profit-sharing arrangement)
·         permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function
·         hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business or cultural functions

1.3.     Exemption under negative list or Mega exemption notification:
Renting of immovable property not taxable in following cases as given in negative list sec. 66D or mega exemption notification (25/2012-st, 20.06.2012):
·         Threshold exemption up to Rs. 10 lacs (Notification no. 33/2012-ST, dated 20.6.12)
·         Renting of vacant land, with or without a structure incidental to its use, relating to agriculture purpose which include for animal husbandry or floriculture (Sec. 66D(d))
·         Renting of residential dwelling for use as residence (Sec. 66D(m)) (Residential dwelling means it has to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp–site, lodge, house boat, or like places meant for temporary stay.)
·         Renting out of any property by the Reserve Bank of India (sec. 66D(b))
·         Renting out of any property by a Government or a local authority to a non-business entity (Sec. 66D(a))
·         Renting of precincts of a religious place meant for general public. (Entry 5 of mega exemption notification)
·         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. (Entry 18 of mega exemption notification)
·         Renting to an exempt educational institution (Entry 9 of mega exemption notification)

1.4.     Taxability of activities relating to renting:
·         A residential house taken on rent is used only or predominantly for commercial or non-residential use would be taxable
·         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
·         Renting of property by education body would be taxable from 1.4.2013
·         Renting of piece of vacant land for facility of vehicles parking on payment to a car dealer – chargeable to service tax
·         Renting of a residential dwelling which is for use partly as a residence and partly for non residential purpose like an office of a lawyer or the clinic of a doctor: Taxability of such bundled services has to be determined in terms of the principles laid down in section 66F of the Act
·         Sums received towards following by the existing tenants / occupants or society from builder developer in course of redevelopment:

Hardship/ shifting allowance, Rent allowance, consideration for surrender of tenancy/occupancy rights in tenements, corpus fund to society, corpus fund to members:
Such amount would not be liable for service tax as it relating to sale of rights in development of permanent property

1.5.     Place of provision of services relating to immovable property

As per Rule 5 of Place of provision of service rules, 2012, the place of provision of services provided directly in relation to an immovable property shall be the place where the immovable property is located or intended to be located, irrespective of where the provider or receiver is located.

1.6.     Cenvat credit

1.6.1.  Renting of immovable service is input service:

If assessee is using the premises for the purpose of office as well manufacture or production of goods, rental charges become an input service for the purpose of manufacture of goods. Therefore, service tax paid on rentals can be availed as Cenvat credit and utilized for payment of on final products so manufactured.

1.6.2.  Renting of immovable service is output service:
·         Home solution Retail Ltd v. Union of India (2009) 14 STR 433 (Delhi) – Input credit of service tax can be taken only if the output is a ‘service’ liable to service tax or a ‘good’ liable to excise duty. since immovable property is neither ‘service’ or ‘goods’, input credit on like industrial or commercial construction service or works contract service which are input service for the output namely immovable property, cannot be taken.
·         Service tax paid on security services received for property on rent, service tax paid on society maintenance charges of rented property would be allowed as Cenvat credit against service tax payable on renting of immovable property.

1.7.     Notifications and ciruclars

Deduction of property tax: As per Notification no. 29/2012- Service Tax, dated 20.06.2012, the taxable service of renting of an immovable property would be exempt from so much of the service tax leviable thereon under section 66B of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies:

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

1.8.     Judgments on renting of immovable property

Kerala State Industrial Enterprises Ltd v. CST, Trivendrum (2011) 21 STR 423 (Cestat, Bangalore) – custodian of airport was collecting charges for facilitating x-raying of cargo by customer airlines at assessee’s premises, it was held that charges were collected only for providing air-conditioned space where customer airlines install and operate their x-ray machines and such activity was taxable under renting of immovable property.

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