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Service tax on rent on immovable property

14 September 2013

Notification No. 24/2007-ST, dated 22-05-2007 exempts taxable service provided by any person in relation to renting of immovable property from service tax equivalent to service tax payable on the amount of property tax, actually paid by the service provider to the local authority.

Considering above, following is my query,

Mr. A is under a contract with Mr. B for providing immovable property on rent on Rs. 1,00,000/- per month basis. (12,00,000/- per year). He charges service tax @ 12.36% on the monthly rent amount. Also, he pays Rs. 5,00,000/- as property tax yearly on the property rented to Mr. B. If he is collecting service tax on whole amount from Mr. B, will he be able to claim Rs. 5,00,000/- (Property tax paid) exemption under the said notification?

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2 Replies

CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 14 September 2013

Dear Mam,

service tax for a month is required to be collected on (Rs. 100000 i.e. rent received for a month - Rs. 41667 i.e. property tax for a month). Thus, yes, he can claim exemption on Rs. 500000 but on appropriate basis (monthly or quarterly, depending on the assessee's status).

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Manoj Agarwal (Service Tax Consultant Rourkela ServiceTaxExpert@yahoo.com) (3456 Points)
Replied 19 September 2013

Dear Parnika,

Notification No. 24/2007 has been rescinded by Notification No. 29/2012 dated 20-6-12 w.e.f. 01-07-12. But the new notification also provide similar exemption as follow:

"G.S.R……(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance

Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), and in supersession of the Government of India in the Ministry of Finance (Department of Revenue) notification No. 24/2007-Service Tax, dated the 22nd May, 2007, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 370 (E), dated the 22nd May, 2007, except as respects things done or omitted to be done before such supersession, the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of renting of an immovable property, from so much of the service tax leviable thereon under section 66B of the said Finance Act, as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies:

Provided that any amount such as interest, penalty paid to the local authority by the service provider on

account of delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes of deduction from the gross amount charged:

Provided further that wherever the period for which property tax paid is different from the period for

which service tax is paid or payable, property tax proportionate to the period for which service tax is paid or payable shall be calculated and the amount so calculated shall be excluded from the gross amount charged for renting of the immovable property for the said period, for the purposes of levy of service tax."

So, you can claim exemption of Rs. 41,667 every month and taxable value of rent is Rs. 58,333/-

But, if you have already charged full tax @ 12.36% on Rs. 1 Lac, you must pay the entire collection of tax to the govt. [Section 73A(2)].

For further clarification, kindly mail me.

Regards,

Manoj Agarwal

ServiceTaxExpert @ yahoo.com