Flowers

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RENTING OF IMMOVABLE PROPERTY
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What is the taxable service?

• As per sub-clause (zzzz) of Section 65(105) of
  the Act, any service provided or to be provided
  to any person by any other person, in relation
  to renting of immovable property for use in the
  course of furtherance of business or commerce is
  the taxable service.

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Introduction

• Renting of a property, movable as well as
  immovable, is one of the important services
  prevalent in the society. It facilitates a person
  to make use of the property for a specific period
  and for a specific purpose.
• Renting activity is already under the Service tax
  net. Similar services such as Rent-a-cab, Renting
  of Mandap, business exhibition service,
  convention service, storage and warehousing
  service etc are based on the concept of renting.
• The services relating to renting of immovable
  property for commercial use was brought into the
  service tax net through the Finance Act, 2007.
• Service tax on this service came into force
  w.e.f. 1.6.2007.
• The services relating to renting or supply of
  tangible goods was brought under the tax net in
  2008.

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Immovable property includes

• building and part of building, and the land
  appurtenant thereto
• land incidental to the use of such building or
  part of a building
• the common or shared area and facilities relating
  thereto and
• in case of a building located in a complex or an
  industrial estate, all common areas and
  facilities relating thereto, within such complex
  or estate,

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Immovable property does not include

• vacant land solely used for agriculture, farming,
  forestry, animal husbandry, mining purposes
• vacant land, whether or not having facilities
  clearly incidental to the use of such vacant
  land
• land used for educational, sports, circus,
  entertainment and parking purposes and
• building used solely for residential purposes and
  buildings used for the purposes of accommodation,
  including hotels, hostels, boarding houses,
  holiday accommodation, tents for camping
  facilities.

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Immovable property does not include

• Immovable property partly for use in the course
  of furtherance of business or commerce and partly
  for residential or any other purposes shall be
  deemed to be immovable property for use in the
  course of furtherance of business or commerce.
• The land given for performing circus.
• The space provided for parking in various malls,
  multiplexes etc.,

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What is renting of immovable property?

• Renting of immovable property has been defined
  under Clause (90a) of Section 65 of the Finance
  Act, 1994. The salient features are as follows
• Renting of immovable property by any arrangement
  such as renting, letting, leasing, licensing or
  other similar arrangements
• The renting of immovable property should be for
  a specified purpose- for use in the course of
  furtherance of business or commerce

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Use of immovable property for the following
purposes is taxable

• Factories
• Office buildings
• Warehouses
• All types of theatres
• All kinds of exhibition halls taken on rent for
  sale of art work, organizing discount sale etc.,
• Multiple use buildings
• Art Galleries rented out to artists/ painters /
  sculptors for exhibiting their works of art on
  payment of scheduled rent

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Renting with or without transfer of possession or
control

• Permitting the use of space in an immovable
  property, irrespective of the transfer of
  possession or control of the property is also
  covered under this category of service.
• As per the amendment w.e.f 16.5.2008, the space
  permitted to be used even without transfer of
  possession or control is liable to Service tax. A
  few illustrations are as follows
• Renting of table space or work station in a big
  office. The control of the entire property
  remains with the owner while a small portion is
  provided on rent.
• Immovable property allowed for placing vending /
  dispensing machines in malls and other commercial
  premises
• Erection of communication towers on buildings.

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Exclusions

• Renting of immovable property by or to a
  religious body
• Immovable property rented out by a religious body
  to any other person will not be liable to pay
  service tax even if the property is used for
  advancement of business or commerce.
• Immovable property rented out to a religious
  body, is also not liable to service tax
  irrespective of the type of use of such property
  by the religious body.
• In short, where a religious body is the service
  provider or the service receiver, no service tax
  is payable.

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Renting of immovable property to an educational
body

• Immovable property rented out to an educational
  body, which is imparting skill or knowledge or
  lessons on any subject or field
• However, this exclusion will not be admissible,
  if the immovable property is rented out to a
  commercial training or coaching centre

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Office building taken on rent by charitable
organization

• The functions of a charitable organization cannot
  be said to be towards furtherance of business or
  commerce Hence, the immovable property rented
  out to such charitable organizations is not
  liable to Service Tax
• However, this exclusion will not be admissible,
  if such charitable organization is running any
  business

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Receipt of Rent is the criteria

• Service Tax liability will arise only when the
  rent is received and not as per the billing.
• For example, if the rent for April 2008 is
  received in May 2008 Service Tax is payable by
  5th June 2008 or 5th July 2008 as the case may
  be.
• Service Tax is payable once in a quarter before
  5th of the month following the Quarter if the
  service provider is a Proprietorship concern or
  Partnership firm. Others are required to pay
  once in a month.

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What is the value of taxable service?

• Valuation of taxable service is covered under the
  section 67 of the Act, read with service Tax
  (Determination of value) Rules 2006 (valuation
  Rules )
• Where the provision of service is for a
  consideration received wholly in money, the value
  shall be the gross amount charged by the service
  provider for provision of service. The term
  consideration includes any amount payable for
  the services provided or to be provided.
• The term gross amount charged shall include
  any amount received towards the service before,
  during and after provision of such service, and
  payment by cheque, credit card, deduction from
  account and any form of payment by issue of
  credit notes or debit notes and book adjustment.

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What is the value of taxable service?

• Where the gross amount charged is inclusive of
  service tax payable, the value shall be such
  amount as, with the addition of tax payable, is
  equal to the gross amount charged.
• Where the provision of service is for a
  consideration which is not wholly or partly
  consisting of money, the value shall be such
  amount in money as, with the addition of service
  tax charged, is equivalent to the consideration.
• Where the provision of service is for a
  consideration which is not ascertainable, the
  value shall be the amount as may be determined in
  the manner prescribed in the valuation Rules.

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What is the value of taxable service?

• All expenditure or costs incurred by the service
  provider including reimbursement of expenses
  shall be included in the value, except certain
  permissible deductions
• The value shall be determined by the service
  provider himself, and such value should not be
  less than the cost of provision of the services
• The Department reserves the right to verify the
  records of the service provider, where there are
  adequate reasons warranting verification of the
  value adopted by the service provider.

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General exemptions

• Full exemption from service tax has been granted
  to the following services / service providers
• Services provided to the United Nations on an
  International Organization declared by the
  Central Government.
• Services provided to a developer of Special
  Economic Zone or to a unit of special Economic
  Zone which satisfy certain prescribed conditions.
• Value of goods and materials sold by the service
  provider to the recipient of service during the
  course of providing any taxable service, provided
  that no Cenvat credit has been taken on such
  goods and materials, or, if Cenvat credit had
  been taken, such credit is paid before effecting
  the sale.
• Service provided for official use of a foreign
  diplomatic mission or consular post in India /
  Services provided for personal use of family
  members of diplomatic agents or career consular
  officers posted in a foreign diplomatic mission
  or consular post in India.

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Specific exemption

• Property tax levied and collected by local bodies
  can be excluded from the gross receipts under
  Notification No. 24/2007-ST, dated 22.5.2007.
  However, 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 eligible for the benefit of
  this exemption.
• Property tax proportionate to the period for
  which service tax is paid alone shall be excluded
  from the gross amount charged for the purposes of
  levy of service tax. The illustration is as
  follows
• Property tax paid for April to Sept Rs.
  12,000
• Rent revived for April Rs. 1,00,000
• Service tax payable for April Rs.98,000(1,00,000-
  2,000)x 12.36

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Adjustment of excess service tax paid

• In the event of excess payment of Service Tax on
  account of non-availment of deduction of property
  tax paid in terms of Notification No. 24/2007-ST,
  dated 22.5.2007, the excess paid tax amount can
  be adjusted towards the liability within one year
  from the date of payment of such property tax in
  terms of Rule 6(4C) of the Service tax Rules,
  1994
• 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.
• The upper limit of Rs. one lakh for such
  adjustment is not applicable in such a situation

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Exemption for small scale service providers upto
Rs. 10 Lakhs

• If the aggregate value of taxable services
  (including the services which are exempt from tax
  under any notification) provided by a service
  provider during the final year 2007-08 has not
  exceeded Rs. 10 lakhs, the service provider has
  the option to avail the threshold exemption upto
  Rs. 10 lakhs during the financial year 2008-09,
  subject to fulfillment of certain conditions and
  requirements.
• If the aggregate amount of all payments received
  during the financial year 2008-09 turns out to be
  more than Rs. 10 lakhs, the service provider
  cannot opt for availing the exemption benefit for
  the financial year 2009-10.
• The threshold limit for availing the exemption
  shall be computed based on all the services
  provided by the service provider from all the
  premises from where the services are provided.
• Exemption for small scale service providers is
  admissible under notification no. 6/2005 ST dated
  1.3.2005 as amended

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Heads of Account
Category Subclause (zzzz) of Section 65 (105)
of the Finance act 1994. Service Tax
Payment 00440406 Primary Education
Cess 00440298 Secondary and Higher 00440426 Ed
ucation Cess Other payments 00440407 (penalty
, interest, late fee etc)
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Authority

• Sub clause (zzzz) of Section 65 (105) of the
  Finance Act, 1994.
• Clause (90a) of Section 65 of the Finance Act,
  1994.
• Notification No.6/2005 ST dated 1.3.2005 as
  amended
• Notification No. 24/2007 ST dated 22.05.2007
• Ministrys Circular D.O.F.No. 334/1/2008 TRU
  dated 29.02.2008
• Rule 6(4C) of the Service Tax Rules 1994.
• Section 67 of the Finance Act 1994 read with
  Service Tax (Determination of Value) Rules 2006

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THANK YOU.