Service tax on rent of immovable property
This query is : Resolved
23 June 2014
Is service tax applicable, if residential property given on rent by an individual to a company for residential purpose?
Please reply.
Please reply.
23 June 2014
Company can not use property for residential purpose as it is only a legal person not natural person. Company has taken on rent to be given to its employees for residential purpose, so Service tax is applicable.
24 June 2014
Here we see the purpose of renting and the purpose in this case is residential.
How will it matter, if it's given to company?
Is it any where written that company cannot utilize its property for residential purpose? Because I think company can utilize it for residential purpose if it's given to its employees and directors.
Could you please give me reference to any provision?
How will it matter, if it's given to company?
Is it any where written that company cannot utilize its property for residential purpose? Because I think company can utilize it for residential purpose if it's given to its employees and directors.
Could you please give me reference to any provision?
24 June 2014
Here we see the purpose of renting and the purpose in this case is residential.
How will it matter, if it's given to company?
Is it any where written that company cannot utilize its property for residential purpose? Because I think company can utilize it for residential purpose if it's given to its employees and directors.
Could you please give me reference to any provision?
How will it matter, if it's given to company?
Is it any where written that company cannot utilize its property for residential purpose? Because I think company can utilize it for residential purpose if it's given to its employees and directors.
Could you please give me reference to any provision?
24 July 2025
Great question! This issue — **service tax applicability on rent of residential property given to a company for residential use by its employees** — was often debated during the service tax regime before GST.
---
### Key Points to Understand:
1. **Service Tax on Rent of Immovable Property:**
* Under the Finance Act and Service Tax law (pre-GST), **renting of immovable property is taxable** only if the property is commercial or industrial.
* **Residential property rentals are exempt**, **except** when the property is used for commercial or business purposes.
2. **Renting Residential Property to a Company:**
* A company is a **legal entity** (not a natural person).
* If the company rents a residential property **and uses it to provide accommodation to its employees/directors** (i.e., as a residential facility), **the use remains residential**.
* However, the law did not explicitly provide a clear exemption if the tenant is a company.
3. **Practical Interpretation and Clarifications:**
* The tax department generally took the view that **renting of residential property is exempt from service tax, regardless of tenant type**, if the **actual use is residential**.
* The **purpose of use** is the key, not the identity of the tenant.
* So, if a company rents a residential property to house employees, it is considered **residential use**, hence **service tax should not be applicable** on such rent.
4. **Reference to Provisions / Circulars:**
* **Explanation to Section 65(105)(zzzz)** of the Finance Act defines “renting of immovable property” and exemptions.
* Circulars from CBEC (Central Board of Excise & Customs) clarified that residential use is exempt from service tax.
* There is **no specific provision** stating a company cannot utilize residential property for residential purposes.
* Courts have held that the **use of the property** is decisive.
---
### Summary:
| Scenario | Service Tax Applicability |
| ------------------------------------------------------------------------ | -------------------------- |
| Residential property rented to individual (residential use) | No service tax |
| Residential property rented to company for employee residential use | Generally no service tax\* |
| Residential property rented to company for commercial use (e.g., office) | Service tax applicable |
\*This is subject to interpretation and facts but widely accepted by practitioners and courts.
---
### Bottom Line for Your Query:
* The **fact that tenant is a company does not automatically make rent taxable.**
* **If the property is used strictly for residential purposes** (housing employees/directors), then **service tax exemption applies.**
* There is no legal bar preventing companies from using rented property for residential purposes.
---
If you want, I can help find relevant circulars or judgments supporting this view, or draft an explanatory note for your records. Would that help?
---
### Key Points to Understand:
1. **Service Tax on Rent of Immovable Property:**
* Under the Finance Act and Service Tax law (pre-GST), **renting of immovable property is taxable** only if the property is commercial or industrial.
* **Residential property rentals are exempt**, **except** when the property is used for commercial or business purposes.
2. **Renting Residential Property to a Company:**
* A company is a **legal entity** (not a natural person).
* If the company rents a residential property **and uses it to provide accommodation to its employees/directors** (i.e., as a residential facility), **the use remains residential**.
* However, the law did not explicitly provide a clear exemption if the tenant is a company.
3. **Practical Interpretation and Clarifications:**
* The tax department generally took the view that **renting of residential property is exempt from service tax, regardless of tenant type**, if the **actual use is residential**.
* The **purpose of use** is the key, not the identity of the tenant.
* So, if a company rents a residential property to house employees, it is considered **residential use**, hence **service tax should not be applicable** on such rent.
4. **Reference to Provisions / Circulars:**
* **Explanation to Section 65(105)(zzzz)** of the Finance Act defines “renting of immovable property” and exemptions.
* Circulars from CBEC (Central Board of Excise & Customs) clarified that residential use is exempt from service tax.
* There is **no specific provision** stating a company cannot utilize residential property for residential purposes.
* Courts have held that the **use of the property** is decisive.
---
### Summary:
| Scenario | Service Tax Applicability |
| ------------------------------------------------------------------------ | -------------------------- |
| Residential property rented to individual (residential use) | No service tax |
| Residential property rented to company for employee residential use | Generally no service tax\* |
| Residential property rented to company for commercial use (e.g., office) | Service tax applicable |
\*This is subject to interpretation and facts but widely accepted by practitioners and courts.
---
### Bottom Line for Your Query:
* The **fact that tenant is a company does not automatically make rent taxable.**
* **If the property is used strictly for residential purposes** (housing employees/directors), then **service tax exemption applies.**
* There is no legal bar preventing companies from using rented property for residential purposes.
---
If you want, I can help find relevant circulars or judgments supporting this view, or draft an explanatory note for your records. Would that help?
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