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Discussion > Service Tax > Queries >

Service tax Payable if property leased out against a Lumsum

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[ Scorecard : 46]
Posted On 12 March 2009 at 14:14 Report Abuse

I have a doubt as how to calculate the service tax on the below issue.

We intend to leaseout our property for commercial purposes against a re-fundable deposit amount of rs.5.00 Crore.

I will not be getting any monthly rent out of the above deal.

The lease period would be for 5 years and at the expiry of the 5 years i will have to return the entire Rs.5.00 crore back to the clinet.

In the above, case how to arrive on the quantum of service tax payable

Pls clarify









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Rajesh Kumar
Advocate- Taxation & Corporate

[ Scorecard : 4000]
Posted On 12 March 2009 at 15:32

Interest earned on the deposit is in effect rent of the property.

law is not clear as to what interest rate should be taken. Take PLR of some bank, say State bank for interest rate.


[ Scorecard : 42]
Posted On 12 March 2009 at 15:56

It depends on how the contract/agreement is built up, if agreement says that deposit is interest free and refundable at the end of the period then interest will not be considered as consideration for rent.

Otherwise the rental can be considered on prevailing market rate for rental in vicinity.

Madhukar N Hiregange
Chartered Accountant

[ Scorecard : 20901]
Posted On 13 March 2009 at 11:28

An alterante view is that if the transaction is a transaction of mortgage the question of liability may not be there.

If considered taxable the rate of borrowing for that person maybe considered as in case of advance for supplies having a nexus to the value of manufactured goods. This apsect would get litgated and unitl then a reasonable method could be followed.

If some method followed intimation to dept maybe preferable to avoid penal consequence as well as longer period invocation.

Rajesh Kumar
Advocate- Taxation & Corporate

[ Scorecard : 4000]
Posted On 13 March 2009 at 13:16

Madhukar is right, in fact has given a new perspective. Why to call this agreement a lease agreement? In substance it is a mortgage agreement. It should be worded in that manner and there will be no service tax liability. Thanks madhukar for a new perspectice you have given.

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