Service tax levy - point of taxation rules
This query is : Resolved
11 September 2015
An assessee provides service of renting of immovable property for short term for conducting programs, events, etc.
For renting the immovable property to a party, they conduct draw.
The parties who want to take the property on rent will apply to our assessee while paying for four months' rent in advance.
After the draw, the assessee will refund the amount collected from the parties to all except the party to whom the immovable property is let out as per draw results.
It is to be noted that the service is not given until the draw is completed. And the invoice is also not issued until the party transfers the possession back to the assessee.
Now the query is -
1.At what time service tax is to be levied on the amount so collected for rent?
2. If on advance, whether service tax is to be levied on advance collected from all parties or only the party to whom property is let out as per draw, as service may not be given to those parties who lose in the draw.
For renting the immovable property to a party, they conduct draw.
The parties who want to take the property on rent will apply to our assessee while paying for four months' rent in advance.
After the draw, the assessee will refund the amount collected from the parties to all except the party to whom the immovable property is let out as per draw results.
It is to be noted that the service is not given until the draw is completed. And the invoice is also not issued until the party transfers the possession back to the assessee.
Now the query is -
1.At what time service tax is to be levied on the amount so collected for rent?
2. If on advance, whether service tax is to be levied on advance collected from all parties or only the party to whom property is let out as per draw, as service may not be given to those parties who lose in the draw.
11 September 2015
Pay service tax on advance received from the party to whom property is let out.
11 September 2015
Before the draw you are not receiving any advance. It is a type of security deposit. No Service Tax is required to be paid on this amount. Once draw is complete, you shall pay service tax based on the invoice issued to the person who is receiving renting service.
21 September 2015
Two experts seem to contradict each other. However, the later explanation that the amount received before draw is not advance seems to be more acceptable.
It requires references for backing the answer.
It requires references for backing the answer.
24 July 2025
Great question! Let’s clarify the point of taxation rules for your situation involving rent collection by draw.
Scenario Recap:
Several parties pay money upfront (equivalent to 4 months’ rent) to participate in a draw.
Only the party that wins the draw actually gets the right to rent the immovable property.
The amounts collected from the other parties are refunded.
No invoice or service provided until the property is actually let out and possession returned.
Key Issues:
When to pay service tax on the amount collected?
On whose amount is service tax payable — all participants or only the winner?
Explanation based on Service Tax & Point of Taxation Rules:
1. Is the amount collected before the draw ‘advance’ or a ‘security deposit’?
Since no service (renting of property) is yet provided before the draw result, the money collected from all parties except the winner is not an advance for service but more like a security deposit or participation fee.
No service tax is leviable on amounts paid by the losing parties because they do not receive any service.
2. Point of Taxation Rule:
As per Point of Taxation Rules, service tax is payable when:
Invoice is issued, OR
Payment is received for the service, whichever is earlier.
In your case, the invoice will be issued only to the party who wins the draw and actually takes possession.
Service tax should be paid when the invoice is raised or possession is transferred, only for the winner’s rent amount.
Summary Answer:
Query Answer
When to pay service tax? On the date of invoice or possession transfer to the winner.
Is service tax payable on amount from all parties? No, only on the amount related to the winner of the draw.
Amount from losing parties Treated as refundable deposit, no service tax payable.
Supporting References:
CBEC Circulars and Point of Taxation Rules, 2011 (Rule 5) explain that service tax is payable on advance only when related to actual service provision.
Payments received without corresponding service (like refundable deposits or fees) are not taxable until service is rendered.
Scenario Recap:
Several parties pay money upfront (equivalent to 4 months’ rent) to participate in a draw.
Only the party that wins the draw actually gets the right to rent the immovable property.
The amounts collected from the other parties are refunded.
No invoice or service provided until the property is actually let out and possession returned.
Key Issues:
When to pay service tax on the amount collected?
On whose amount is service tax payable — all participants or only the winner?
Explanation based on Service Tax & Point of Taxation Rules:
1. Is the amount collected before the draw ‘advance’ or a ‘security deposit’?
Since no service (renting of property) is yet provided before the draw result, the money collected from all parties except the winner is not an advance for service but more like a security deposit or participation fee.
No service tax is leviable on amounts paid by the losing parties because they do not receive any service.
2. Point of Taxation Rule:
As per Point of Taxation Rules, service tax is payable when:
Invoice is issued, OR
Payment is received for the service, whichever is earlier.
In your case, the invoice will be issued only to the party who wins the draw and actually takes possession.
Service tax should be paid when the invoice is raised or possession is transferred, only for the winner’s rent amount.
Summary Answer:
Query Answer
When to pay service tax? On the date of invoice or possession transfer to the winner.
Is service tax payable on amount from all parties? No, only on the amount related to the winner of the draw.
Amount from losing parties Treated as refundable deposit, no service tax payable.
Supporting References:
CBEC Circulars and Point of Taxation Rules, 2011 (Rule 5) explain that service tax is payable on advance only when related to actual service provision.
Payments received without corresponding service (like refundable deposits or fees) are not taxable until service is rendered.
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