As per the present service tax law, all services are taxable to service tax @14 % unless they are covered by any of the entries in the negative list or are part of the mega exemption notification.
Clause 44 of section 65B of service tax act has stated that services include declared service. Declared service means those services which would be deemed as taxable services and on which service tax has to be paid.
Renting of immovable property has been specifically mentioned as part of declared service. This means, rent on immovable property is liable to service tax @14%.
However, in following cases rent on immovable property will not be charged to service tax as these are covered under negative list;
- Renting of vacant plot with or without structure incidental to its use, relating to agriculture.
- Renting of residential dwelling for use as residence
- Renting out of any property by RBI
- Renting out by government or local authority to a non business entity.
As per the second category mentioned above, renting of residential dwelling for use as residence is only non taxable. If such residential property let out for commercial activity then service tax will be charged.
What to be included and excluded for calculation of rent
Security deposits received by property owner from tenant will not be considered for service tax calculation if the amount received is refundable. At the end of the tenure or during the period, if security money has been adjusted against rent payable then such security deposits will be liable to service tax.
Electricity charges paid on actual basis will not be considered for calculation of service tax.
Maintenance expenses of building or complex are also considered as a service by which this amount will also be charged to service tax.
Taxes on property like property tax should not be considered while calculating the amount to be charged for service tax.
However, interest and penalty paid for late payment or non payment of property tax should not be considered as property tax by which interest and penalty will not be deductible.
When rent on immovable property is exempted from service tax
In following cases, service tax will not be charged on rent on immovable property;
- If total value of all services including rent on immovable property does not exceed the threshold limit of Rs 10 lakhs per year.
- As per mega exemption notification following services will be exempted from service tax;
- Renting of precincts of a religious place meant for general public
- Renting of hotel, inn, guest house, club and other commercial places meant for residential or lodging purposes having declared tariff of a room below Rs. 1000 per day or equivalent
- Renting to an exempt educational institution