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  • Service Tax on Renting of Immovable Property

    Immovable property is an immovable object, an item of property that cannot be moved without destroying or altering it. The property is fixed to the earth such as land or a house. Renting of immovable property includes renting, letting, leasing, licensing or other similar arrangements of the immovable property. Renting of immovable property does not include renting for a religious body or to an educational body. Renting of immovable property is a service and it is subject to service tax.

    Service tax on rent came into effect from 1st June, 2007. Service tax is not applicable on renting of vacant land relating to agriculture or renting of residential dwelling for use as residence, property rented by Reserve Bank of India and property rented by a Government or local authority to a non-business entity. Service tax is obligatory if the total value of services provided exceeds the threshold limit of Rs.10 lakhs per annum.

    Service Tax on Renting of Immovable Property for Residential Purpose:

    Renting is allowing, permitting or granting access, entry, occupation and usage of such facility in an immovable property with or without the transfer of the possession of control.

    Residential dwelling is any residential accommodation but does not include hotel, motel, inn, guest house, camp-site, lodge, houseboat, or places meant for temporary stay.

    There is no service tax charged on renting of immovable property for residential purpose. Service tax is not applicable to any amount that is refundable and collected from the tenant as security or rental deposit. The non-refundable deposit will be subject to service tax.

    Maintenance charge towards the building is subject to service tax. The tenant is liable to pay the service tax. It is the land owner’s responsibility to collect the tax amount from the tenant and remit it to the department.

    Service Tax on Renting of Immovable Property by Joint Owners:

    A property can be rented in different ways. The property can be owned by a single owner or it can be owned by joint owners and owned by common owners.

    When the property is owned by a single owner, 100 percent of the share of the property lies with the owner and the whole rent is being paid to the same single owner. When the property is owned by joint owners, all the joint owners are deemed to hold equal share in the property and they will receive equal share of the rent on the property. When the property is owned by common owners, the owner can own the property in any proportion that is agreed upon. The split ownership determines the share of the rent amount. Joint owners are only liable for the service tax on rent received in the individual capacity.

    Threshold Limit for Service Tax on Renting of Immovable Property:

    Service tax is mandatory to be paid if the total value of the services provided by the service provider exceeds the threshold level of exemption is up to Rs.10 lakhs per annum. If the total value of the services provided by the service provider is less than Rs.10 lakhs per annum, then he is not liable to pay the service tax.

    TDS on Immovable Property:

    Tax deduction at source on rent is liable to be deducted by the person making the payment if the total amount to be paid during the year exceeds Rs.1,80,000 per annum. This limit is per taxpayer. If there are 2 co-owners of the asset, the limit would apply for each co-owner. The tax deduction at source on rent is liable to be deducted if the payment to each co-owner exceeds Rs.1,80,000 per annum.

    Service tax at 12.36 percent is liable to be paid if the total amount received by your landlord from one or more sources during the year exceeds Rs.10 lakhs.

    To avail TDS on rent,

    • The receiver of the rent shall give his pan card details to the person paying the rent. If the pan card number is not intimated, then the TDS on rent shall be liable to be deducted at 20 percent.
    • Surcharge is not applicable on TDS on Rent except where payment is made to a foreign company and the amount exceeds Rs.1 crore.
    • Education cess or secondary or higher education cess cannot be additionally charged on TDS on rent.
    • If the tenant makes a non-refundable deposit, then TDS will be liable to be deducted in such deposits. If the deposit is refundable, then no TDS will be deducted on such deposits.
    • If the tenant pays municipality taxes, ground rent etc., then no tax will be deducted on such amount.
    • TDS on rent payment shall be deducted where payments are made for hotel accommodation taken on regular basis.

    Service Tax Applicable on Rent:

    Service tax on rent of immovable property is payable at 14 percent from 1st June, 2015.

    FAQs:

    1. What are the cases when service tax on rent is not chargeable?
    2. A. The service tax is not charged on renting of vacant land, with or without a structure relating to agriculture, renting of residential dwelling units used as residence, renting out of property by Reserve Bank of India and renting out of property by a Government or a local authority to a non-business entity.

    3. What are the exemption from service tax on rent?
    4. A. Service tax is not mandatory if the total value of services provided by the service provided is less than Rs.10 lakhs and the service tax is exempt on renting of precincts of a religious place meant for the public, renting of hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes whose tariffs are below Rs.1,000 per day and on renting of an exempt educational institution.

    5. What is the service tax applicable on rent of immovable property?
    6. A. The service tax on rent of immovable property is payable at 14 percent.

    7. What is the threshold limit for service tax on renting of immovable property?
    8. A. The threshold limit Rs.10 lakhs per annum.

    9. What is a joint owner’s service tax liability?
    10. A. When the property is owned by joint owners, all the joint owners are deemed to hold equal share in the property and they will receive equal share of the rent on the property. Joint owners are only liable for the service tax on rent received in the individual capacity.

    News About Service Tax on Renting of Immovable Property

    • Flats Under Construction will not Attract Service Tax

      In light of a recent case, the Delhi High Court rules that service tax cannot be levied on flats that are undergoing construction in a housing project. In general, service tax charged on flats under construction is typically 25 to 30 per cent of the value of the flat. However, the service tax is not levied on the entire value of the property under construction but is levied on a specific percentage of the total cost of construction. Justices S. Muralidhar and Vibhu Bakhru passed an order in a case filed by home buyers who had entered into separate agreements with Sethi Buildwell Pvt. Ltd to buy apartments in a multi-storeyed group housing project developed by the builder in sector 76 in Noida, Uttar Pradesh. The order came as a relief to home buyers as it stated that the government will examine whether the builder collected any service tax from the petitioners, and if so, the amount will be required to be refunded to them with interest at 6 per cent per annum.

      27th June 2016

    • Delhi High Court Rules No Service Tax For Under Construction Flats

      As per a new judgement recently passed by the Delhi High Court, under-construction flats will no longer be levied with the added burden of service tax. The judgement is set to bring a lot of smiles to thousands and thousands of home buyers who have already booked flats that are currently under construction. The Delhi High Court stated that no builder or developer will be able to charge service tax to home buyers who have bought property that is under construction, and that the judgement will apply to all flats purchased prior to July 1st 2012. However, the judgement passed will not be all-encompassing, as builders and developers can still charge buyers extra under ‘Preferential Location Charges’ (PLC). The judgement came about due to a petition filed by two buyers who purchased flats from Sethi Buildwell Pvt. Ltd in the Max Royal group housing project in Noida's Sector 76. Buyers who have already paid service tax are entitled to a refund from the developer along with a 6% rate of interest.

      10th June 2016

    • TDS of 1% for Immovable Property As Per Section 194 IA of the IT Act 1961.

      With this real estate in India booming, the sale and purchase of immovable property will see an addition of TDS of 1% for a value of Rs. 50, 00, 000 and above as per section 194 IA of the IT Act 1961 with effect from June 2013. This section will require you to have tax deducted at source. This tax will be applicable for the buyer of the immovable property, and if the seller doesn't have a PAN then the rate of deduction will be increased to 20%.

      29th September 2015

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