BIG BAMBOOZLE

Last updated: 26 March 2007

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The Indian government has proposed a new service tax on renting commercial immovable properties, excluding residential spaces and vacant land. This proposal has sparked widespread confusion among property owners and businesses, particularly in the IT sector, which relies heavily on rented infrastructure. Key details remain unclear, such as registration requirements for owners renting to banks and whether the tax applies to every rent installment.

New Service proposed to be added in the service tax is Property rent service. A dilemma is spread in the blood wounds of all the property owners receiving the rent against the thought of paying the service tax on the rent collected.
Mr Finance Minister has just created a lot off hustle and bustle by stating a line -

â€œServices provided in relation to renting of immovable property, other than residential properties and vacant land, for use in the course or furtherance of business or commerce(such services provided by or to a religious body are excludedâ€

As per the view of market the tax is paid on the rent by the rent payer to the owner of property, but if the same goes then working in India for IT sector specially will become a tough job. IT sector is one of the sector providing services to huge clientele in domestic as well as international markets and requires huge infrastructure for setting up there office and providing space to the working hands. If the same goes on the services provided by them will become more costly and rather than giving it a raise this would bring a set back to them.

Words used by Mr. Minister are renting of immovable property. This may move to the direction including those persons who act as property dealers and consumes high commissions for getting space on rent.
What if a person is having a property rented by him to bank. Does he have to collect service tax on it from the bank and have to get registered in service tax? How many of the property owners with this point will now be registered under the service tax? With the birth of this new service under the service tax, no change has been brought up in the House Property section relating to the service tax collected on the rent when the same will be collected by the owner. Neither this has been cleared that whether this tax will be collected on every installment of rent or 1st time?

With lot of confusions Mr. Minister has left all around to make presumptions on the statement made and all after the big debates he will open the Pandora box to remove the confusion on the issue. Till then one has to keep stomach tight and mind boggling on the service tax.