Service Tax On Rent For Immovable Property

Renting of immovable property is treated as a service that is taxable and subject to Service Tax. There is a threshold limit as well as a tax deduction at source.

Note: Service Tax has been replaced by the Goods and Services Tax (GST) starting 1 July 2017.

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.

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.

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 % 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

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 % 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 %.
  • 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 % from 1st June, 2015.

FAQs:

  1. What are the cases when service tax on rent is not chargeable?
  2. 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. 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. The service tax on rent of immovable property is payable at 14 %.

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

  9. What is a joint owner’s service tax liability?
  10. 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.

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