Applicability of service tax
25 November 2011
25th November 2011
One of my friend is having TWO immovable properties. One is purely rented out for residential purpose and the another is purely rented out for commercial purpose. There is no partial use of residential and commercial in both the buildings.
He is receiving rental income from both the properties -
Rental Income from residential property is around Rs.4.00 lacs per annum.
Rental income from commercial property is Rs.12.00 lacs per annum. This 12.00 lacs includes maintenance charges, water charges....etc.
I request the members to advise me the following:
(1) There is an 10.00 lacs exemption limit for small service providers. In my case the said ten lacs exemption limit would be crossed only in the month of February every year. In view of the above, how to collect service tax from the tenants - whether to collect service tax for whole year or for the month of February and March alone.
(2) Whether rental services from both the properties would come under the purview of service tax act. (Note : This doubt arises because my friend has two propetires - one rented out exclusively for residential and one rented out exclusively for commercial. )
(3) Whether maintenance charges and water charges collected would come under the purview of service tax
26 November 2011
As per NN 6 dated 01.03.05 last amended by NN 8 dated 01.03.08, assessee is not required to pay service tax on initial payment RECEIVED up to rs. 10 lac if, inter alia, aggregate value of taxable services RENDERED in the preceding financial year does not exceed rs. 10 lac.
However, as per Service Tax (Registration of Special Category of Persons) Rules, 2005 assessee is required to make application for registration within a period of thirty days of exceeding the aggregate value of taxable service of 9 lakh rupees.
Thus on the basis of above provision and fact of the case it is concluded that u need not to collect tax on initial 10 lac rupees and u will collect tax only on Rs. 2 lac. If u have not taken registration number earlier then apply within 30 days from the date aggregate value of taxable service of exceeds 9 lakh rupees.
2 & 3.
As Per Section 65 (105) (zzzz)
“Taxable Service” means any service provided or to be provided to any person, by any other
person, by renting of immovable property or any other service in relation to such renting for use in the
course of or, for furtherance of, business or commerce.
Explanation 1.—For the purposes of this sub-clause, “immovable property” includes—
(iii) the common or shared areas and facilities relating thereto; and
(iv) 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, but does not include-
(c) …… and
(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents,
Explanation 2.—For the purposes of this sub-clause, an immovable property partly for use
in the course or 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 or furtherance of business or commerce.
Thus as u said u used one property for solely for residential purpose then rental income from such property is not subject to service tax. Maintenance charges and water charges shall be considered while calculating service tax.
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27 November 2011
Thanks Sir for your reply
One of my friend say that once we cross the basic exemption limit of Rs.10.00 lacs then the said exemption is not available during the subsequent years.
For example a service provider provides services for RS.12.00 lacs during 2010-11 and get himself registerd with the service tax department. The basic exemption is breached only in February 2011.
My question in this case is whether the basic exemption of Rs.10.00 lacs will be available for the service provider for the next financial year.
My friend says that the basic exemption is not available and the service provider has to charge service tax from the day one of the next financial year.
I request you to kindly clarify
27 November 2011
Yes he is absolutely right and if u will read carefully provision of above NN 06 last amended by NN 8 then u will find the same.