ST on Lease Rent in Underconstruction flats in Noida

This query is : Resolved

Nadeem Ahmed (Querist)
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05 August 2010 Dear Experts,

A builder in Noida is charging Service Tax @ 10.3% on Lease Rent from the buyers of his underconstruction RESIDENTIAL project. Views have come that Service Tax on Lease Rent (payable to Noida Authority) is leviable only on COMMERCIAL properties and not RESIDENTIAL projects and as such the said builder is wrong in charging ST on Lease Rent on buyers of residential flats.

As per my understanding the financial act 2010 , clearly means that service tax on lease rent is for those construction which
are commericial/future bussiness. The Finance act, 2010 has made the following important amendments relating to Renting of Immovable Property Service: (section 65 (105)(zzzz))

‘Renting’ activity itself regarded as taxable service (Retrospectively amended from 1 June, 2007) Renting of vacant land for construction of building /temporary
structure at later stage for furtherance of business or commerce regarded as taxable service.

As lease agreement is between Noida Authority and end user of a residential project in the area marked for Residential purpose only, no business or commerical angle comes in picture.

In this background, please advise if the builder is right or wrong in charging service tax on lease rent for undercontruction residential project in a specifically marked 'residential only' area.

atul gupta

atul gupta (Expert)
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06 August 2010 it appears that after construction lease rent will have to be paid by house owner. if this is the situation, it is certain that no service tax laibility arises.

To my mind more possibility is that even otherwise also no service tax liability arises.

However, the governemnt may take a stand that since presently this land is given to developer in furtherance of his business so service tax liability is there.