In the past few years, there has been much confusion regarding the applicability of Service Tax on Rent. The Govt’s stand was different to what the Courts had to say regarding the applicability of Service Tax on Rent which lead to confusions regarding whether service tax on renting of immovable property is payable or not.

To remove all such confusions, the Govt while introducing the Negative List of Services regime in Service Tax (which came in effect from 1st July 2012), the Govt has in the definition of ‘service’ contained in Clause (44) of Section 65B, specifically mentioned that Service includes a “Declared Service”.

Declared Services are those services which would be deemed to be a service (whether it is a service or not), and Service Tax would be payable on the same. The Govt has specifically mentioned the services which would be considered as Declared Services and Renting of Immovable Property has been specifically mentioned as a Declared Service.

In the light of the above changes, Service Tax on Renting of Immovable Property is liable to be paid as per the rates in force.

Service Tax on Rent not chargeable in following cases

Consideration received for the following types of activities has been included in the negative list of Services and and therefore rent received from the following is not chargeable to Service Tax:-

  1. Renting of Vacant Land, with or without a structure incidental to its use, relating to Agriculture
  2. Renting of Residential dwelling units for use as Residence*
  3. Renting out any property by the Reserve Bank of India
  4. Renting out any property by a Government or a Local Authority to a non-business entity

*Please Note: Only Residential units let-out for use as Residence are exempted. Service Tax on Residential units let-out for the purpose of any commercial activity would come under the purview of tax and thus service tax would be liable to be paid on Residential Units let-out for the purpose of any commercial activity.

Renting or permitting usage of any property for a temporary purpose like conduct of a marriage or any other social function would also be taxable.

Exemption from Service Tax on Rent

Apart from inclusion of certain activities in the Negative List of Services, the following have been specifically exempted from the levy of Service Tax:-

  1. Service Tax is only mandatorily liable to be paid if the total value of services provided by the service provider exceeds the threshold limit of Rs. 10 Lakhs p.a. If the total value of all services provided by the service provider is less than Rs. 10 Lakhs p.a., he is not mandatorily liable to pay service tax. (Recommended Read: Service Tax Exemption below Rs. 10 Lakhs)
  2. Renting of Precincts of a Religious Place meant for General Public.
  3. Renting of a Hotel, Inn, Guest House, Club, Campsite or other commercial places meant for Residential or Lodging purposes, having declared tariff of a room below Rs. 1,000 per day.
  4. Renting of an exempt educational institution.

Service Tax would be levied on Rent in all other cases. The Service Tax on Rent collected by the Service Provider from the Service Recipient is required to be deposited with the Central Govt before the Due Date of Payment of Service Tax.

Recommended Read:

Computation of Service Tax on Rent

The Ministry of Finance vide Notification No. 29/2012 Service Tax dated 20th June 2012, announced that Service Tax is to be levied on the

Gross Amount charged for renting of such immovable property

(Less)    Taxes on Such Property namely property tax levied and collected by Local Authorities

However, any amount such as Interest, Penalty paid to the Local Authority by the Service Provider on account of delayed payment of Property Tax or for any other reason shall not be treated as Property Tax for the purpose of deduction from the Gross Amount Charged.

Computation of Service Tax on Rent can be explained with the help of the following example

Rent Received for the Year:                        Rs. 25 Lakhs

Property Tax paid for the Year:                  Rs. 1 Lakh

                                                                  Rs. 24 Lakhs

Service Tax on Rent as per the rates in force would be payable on the above Rs. 24 Lakhs. The Rate of Service Tax applicable from 1st June 2015 is 14%. Swachh Bharat Cess @ 0.5% and Krishi Kalyan Cess @0.5% would also be levied over and above this 14% and therefore the effective rate of Service Tax on Rent would be 15%

FAQ’s regarding Service Tax on Rent

The following would be the treatment of activities of renting with respect to levy of Service Tax.

Renting of Property to an Educational BodyExempted if provided to an Education Institution for the purpose of Education which is exempted from the levy of Service Tax. In would be taxable in all other cases.
Renting of Vacant Land for Animal Husbandry or FloricultureNot chargeable to Service Tax as it is covered in the Negative List entry relating to Agriculture.
Permitting use of Immoveable Property for placing Vending/ Dispensing MachinesChargeable to Service Tax as permitting usage of space is covered in the definition of Renting
Allowing erection of a Communication Tower on a Building for ConsiderationChargeable to Service Tax as permitting usage of space is covered in the definition of Renting.
Renting of Land or Building for Entertainment or SportsChargeable to Service Tax as there is no specific exemption
Renting of Theatres by owners to Film Distributors (including under a profit sharing arrangement)Chargeable to Service Tax as the arrangement amounts to renting of immovable property.