Taxing implications for pg business

Tax queries 4066 views 3 replies

novice

learner

36 Points Joined May 2017

Hi, I am starting a PG(paying guest) business, which works as follows:

I take a residential property on rent - say an apartment on rent on homeowner.

I furnish the apartment and with his consent, I rent it out to other people - say students or working people. I pay the agreed rent to the landlord and collect rent from the occupants.

For example. Let's say I take a 2bhk apartment on rent for 20k per month. I invested 100k in the apartment, buying all the necessary items such as fridge, tv, ac, furniture etc. I rent the two rooms to two individuals for 12.5k each.

I have multiple PGs running like this.

Now my questions are the following:

1. Will this business qualify under presumptive taxation scheme? For example, if I collect 20 lac total rent for the year, can I just show 20*6/100 or 20*8/100 as my income?

2. Will any transaction attract service tax?

3. What are the TDS implications? WIll I need to cut TDS? will the tenants that I rent the place out to? What are the exact TDS rules in such scenareos and where can I find them.

Thanks and regards

Replies (3)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

209500 Points Joined July 2016

1. Will this business qualify under presumptive taxation scheme? For example, if I collect 20 lac total rent for the year, can I just show 20*6/100 or 20*8/100 as my income?

YES

2. Will any transaction attract service tax?

YES, but may not attract GST, if aggregate TO is below 20 lakhs.

3. What are the TDS implications? WIll I need to cut TDS? will the tenants that I rent the place out to? What are the exact TDS rules in such scenareos and where can I find them.

TDS in your case will be applicable only if rental payment to any landlord is more than 50,000 PM

Sanjay S

Chartered Accountant

1375 Points Joined August 2012

Q 2. Since you have rented out these properties for 'residential purposes', the same is covered under Negative List of Services u/s 66D(m) of the Finance Act, 1994 and is hence not taxable.

Q 3.

For AY 2017-18 :-If you are subject to audit u/s 44AB, then TDS u/s 194-I, shall apply when payments to any one landlord exceeds Rs.1,80,000 per annum. Else no TDS liability arises.

For AY 2018-19 :- I agree with above answer. TDS provisions u/s 194-IB shall apply, even if you are not subject to section 44AB for that AY. TDS rate shall be 5% u/s 194-IB and the landlord should be Resident in india.

novice

learner

36 Points Joined May 2017

Thank you Sir Dhirajlal and Sir Sanjay for your comprehensive replies. I cannot convey how grateful I am to you for clearing things up.

Thank you Sanjay for also mentioning the clause references in your answer. I have taken some time to reply back as I wanted to read those clauses in free time and understand them clearly.

So, from what I understand from both your answers and looking up the clauses online, in layman's terms is:

Till my annual turnover (which is basically the total amount I receive from all the tenants in any FY) is below 2 crore, and I chose to opt for the presumptive taxation - I don't need to cut TDS from the rent I am paying to the landlords (given it's less than 50k pm). Is that correct?

I couldn't find much information regarding "and the landlord should be Resident in india." part. What if the landlord lives and works abroad?

Another query I have is regarding the service tax registration. Not sure if I should ask here only or on a seperate thread. The questions is:

I want to open a current account in the name of the firm. For that the bank guys asked me to submt form ST2. Now, as you've replied, my transactions will be exempt from service tax (66D(m)). So technically I shouldn't have to have a service tax registration right? Why do I have to apply for service tax registration if I don't need to pay service tax? Should I try to convince the bank people about this? If I must have the service tax registration - are there any cons of it that I should be aware of (any kind of compliances etc)? Or can I just use the ST2 form to open the current account and sleep over it without having to worry about anything? Thanks!!