Dvat on leaseing of machinery

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Bikram (Querist)
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27 December 2013 our client is giving machinery in leasing and is paying service tax @ 12.36%, whether our client have to pay vat also, he is paying service tax on it??

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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27 December 2013 If leasing is done by excuting proper documents as per law then it is to be taken as a sale as per the constitutional amendment introduced(46th).Once it is taken as a sale and vat is paid on the rentals received there will be no ST liability.Otherwise,although a transaction is called as leasing it may be considered as hiring and ST liability will arise......mjk

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Bikram

Bikram (Querist)
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28 December 2013 can u further explain when vat to be charged and when service tax to be charged?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 In the context of leasing machinery, both VAT (Value Added Tax) and service tax may be applicable depending on the nature of the transaction and the laws in your jurisdiction. Here’s a breakdown of when VAT and service tax are typically charged:

1. **Service Tax:**
- **Applicability:** Service tax is levied on specified services provided by a service provider. In the case of leasing of machinery, if the lease transaction is considered a service under the Service Tax law in your country (or region), service tax would apply.
- **Rate:** The rate of service tax varies based on the specific service provided. In your case, you mentioned service tax is paid at 12.36%.

2. **VAT:**
- **Applicability:** VAT or its equivalent (such as GST in some countries) is typically levied on the sale of goods or services. In the context of leasing machinery, VAT may apply if the transaction is considered a sale or deemed to be a sale under VAT laws.
- **Rate:** The rate of VAT also varies depending on the jurisdiction and the type of goods or services. It is usually a percentage of the sale price or lease charges.

### Charging of VAT and Service Tax:
- **Lease of Machinery:** If your client is leasing machinery to another party:
- **Service Tax:** Service tax is applicable on the lease charges if leasing of machinery is considered a taxable service under service tax laws. The service tax rate would be as per the applicable law in your country.
- **VAT:** Whether VAT applies depends on the legal characterization of the lease transaction:
- If the lease transaction is deemed to be a sale of goods under VAT laws, VAT may be applicable on the lease charges.
- If the lease is considered a pure service without the transfer of right to use the machinery as goods, VAT might not apply.

### Conclusion:
- **Dual Taxation:** It's possible for both VAT and service tax to be applicable if the lease transaction is considered both a sale (subject to VAT) and a service (subject to service tax).
- **Compliance:** Your client should review the specific VAT and service tax laws applicable in your jurisdiction to determine their tax liabilities accurately. It's essential to comply with both VAT and service tax regulations, including registration, filing of returns, and payment of taxes to the respective tax authorities.

To ensure compliance and accurate tax treatment, consulting with a tax advisor or accountant familiar with local tax laws would be beneficial for your client. They can provide tailored advice based on the specific details of the lease transactions and applicable tax laws in your region.