Service Tax on House Property
Last updated: 06 June 2007
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Service Tax on House Property
Applicable from 01/06/07.
Mr. Finance minister in the budget for the year has levied an Indirect tax on the let out of property. Tax will be charged in contracts where the property is rented or leased out for commercial purpose. Every person whose aggregate value of taxable services in a year exceeds Rs. 8, 00,000/- is liable to collect the service tax on the rent. A prospective assessee has to file an application under ST-1 to get registration within 30 days from the date of notification of taxable service or commencement of service.
Section 65(90a) covers ``letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce''.
This provision excludes the renting of immovable property by a religious body or to a religious body and renting of immovable property to an educational body other than a commercial training or coaching centre.
Exemption from service tax:
1. An exemption is given where a property is let out on pure revenue sharing basis
2. Notification No.24/2007-Service Tax, exempts taxable service provided by any person in relation to renting of immovable property from service tax equivalent to service tax payable on the amount of property tax, actually paid by the service provider to the local authority. In other words, service tax is payable on the rental amount received less the actual amount of property tax paid.
There may be a situation where property tax is paid after the payment of service tax on the rental. As a result, deduction of property tax paid from rental could not be availed of at the time of payment of service tax. In such cases, Rule 4C of the Service Tax Rules, 1994 provides self-adjustment of excess service tax paid without any limit [Notification No.24/2007-Service Tax,].
Property let out for residential purpose is out of the of preview of the service tax therefore if the property let out is used for both residential as well as commercial purpose then it will be eligible for service tax.
Commercial Use - An explanation to the provision elaborates that use in the course or furtherance of business or commerce would include use as factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings. Section 65(105) (zzzz) provides that the tax is on the renting of immovable property by any person to any other person for use in the course or furtherance of business or commerce.
Immovable property includes building, part, and appurtenant land, land incidental to the use of the building, common areas and facilities, common areas within a complex. It does not include vacant land used for agriculture, aquaculture, farming, forestry, animal husbandry, mining, vacant land in general, land used for parking, educational, sports, circus, entertainment purposes and building used solely for residential purposes and building used for purpose of accommodation including hotel, hostel, boarding houses, holiday accommodation, and tents
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