Service Tax on Rent of Immovable Property & TDS on Rent
July 6, 2013 Leave a comment
SERVICE TAX ON RENT
Service tax on rent came into the effect from 01-06-2007. There has been much confusion regarding applicability of service tax on rent. The Govt’s stand and courts stand was different regarding the applicability of service tax on rent which lead to confusion regarding the service tax on renting of immovable property is payable or not.
To remove all such confusions, the govt. has included SERVICE TAX ON RENT ING OF IMMOVABLE PROPERTY in Declared Services while introducing the Negative List of Services in Service Tax (w.e.f. July 1, 2012)
Declared Services means: services which would be deemed to be a service (whether it is a service or not) and service tax payable on them.
In view of the above changes, Service tax is said to be applicable on renting of immovable property, except in the below mentioned types:
• Renting of vacant land, relating to agriculture
• Renting of residential dwelling units for use as Residence
• Renting out any property by the Reserve Bank of India
• Renting out any property by a Government or local authority to a non-business entity
Applicability of Service Tax: Service tax in mandatory, if the total value of services provided by service provider exceeds the threshold limit of Rs. 10.00 lacs p.a. If the total value of services provided by the service provider is less than Rs. 10.00 lacs, service provider not mandatorily liable to pay service tax.
Calculations of Service Tax:
Service tax on renting of immovable property to be calculated as per the Notification No. 29/2012- Service Tax dated June 20, 2012
Service tax is to be levied on the “Gross amount charged for renting of such immovable property” – “Taxes on such property namely property tax levied and collected by Local authorities”
TDS on Service Tax
However a confusion which has arose is whether TDS on service tax is also liable to be deducted or TDS on service tax is not liable to be deducted. In simple terms, TDS to be deducted on amount inclusive of Service tax or exclusive of Service tax.
As per CIRCULAR NO. 4/2008, DATED 28-4-2008 Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
However as per latest notification vide Letter F.No. 275/73/2007-IT(B), dated 30-6-2008 The payments made under section 194-I differ significantly from payment made under section 194J in the way that in the case of 194-I TDS has to be deducted on any income paid as rent. However, in the case of section 194J TDS has to be deducted on any sum paid as professional and technical fees. The Board had decided to exclude TDS on service tax component on rental payment because it was construed that service tax payment cannot be regarded as income of the landlord