The prices of immovable properties have shot up during the last five years. There’s also a pointy rise within the rents of immovable properties simultaneously. With the arriving of MNCs and a revolution within the work culture a result of computerization has increased the demand for well-furnished properties within the country. This trend has drawn the eye of Indian Finance Ministry too. With an aim to broaden the Service tax base, the Finance Ministry, in Budget 2007, proposed to hide several new services under the umbrella of service tax net, and “Renting of Immovable Property” is a type of. The dept intends to achieve significant tax revenue from this new service sector. The activity of renting immovable properties for commercial use is taxable with effect from 1st June 2007.

What is Immovable Property?

According to the definition, in each of the civil law systems, immovable property is the equivalent of “real property” in common law systems, i.e. this can be a piece of a land or any permanent feature or structure above or below the skin. Immovable properties include premises and property rights, houses, land and associated goods and chattels. Immovable properties can be found in and always have a hard and fast address.

As per the Indian Law, Explanation 1 to section 65(105)(zzzz) states that varieties of land & building are included within the meaning of “Immovable property” and kinds of land & building aren’t included in “Immovable Property” for the aim of applicability of service tax on its rent.

Details of an identical are as under:-
(I) Included in Immovable Property:-
i. Building and element of building, and the land appurtenant thereto;
ii. Land incidental to using such building or component to building;
iii. The typical or shared areas and facilities relating thereto; and
iv. In case of a building located in a fancy or an industrial estate, all common areas and facilities relating thereto, within such complex or estate.

(II) Not Included in Immovable Property:-
i. Vacant Land solely used for  agriculture purpose, aquaculture purpose, farming purpose, forestry purpose, animal husbandry purpose, mining purpose.
ii. Land Used for  educational purpose, sports purpose, circus purpose, entertainment purpose, parking purpose.
iii. Vacant Land, even if having facility clearly incidental to using such vacant land.
iv. Building used solely for residential purpose.
v. Building used for accommodation purpose (like hotels, hostels, boarding houses,
holiday accommodation, tents, camping facility).
What is Renting of immovable property?

Renting of immovable property includes renting, letting, licensing or other similar arrangement of immovable property to be used in the middle of furtherance of industrial or commerce. “For the usage of furtherance of commercial or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings.

As per section 65(90a) “renting of immovable property is to be used within the course or furtherance of commercial or commerce.” Further as per section 65(105) (zzzz) taxable service means any service provided or to be provided to any individual by the other person when it comes to renting of immovable property for the use within the course or furtherance of commercial or commerce. Here it’s pertinent to notice that meaning of the word “person” shouldn’t be specifically defined within the statute related with service tax.

Who are susceptible to pay service tax?

Every one who is providing taxable services for greater than Rs.1,000,000 in any financial year (from 1st April to 31sty March) is chargeable for tax. As service tax is an indirect tax so payer can collect the tax from the service recipient. In case immovable property the landlord is the company and tenant is a service recipient. If the organization is found in India, he’s the man answerable for paying the service tax, regardless of whether he has collected the service tax from the receiver. However where the corporation is found outside India and the service receiver is found in India, then the service receiver will treated because the business enterprise and repair receiver is the man accountable for paying service tax.

Properties should not accountable for service tax

i. Renting of immovable property by a spiritual body or to a spiritual body
ii. Renting of immovable property to a tutorial body, imparting skill or knowledge or lessons on any subject or field, aside from a commercial training or coaching center.
iii. Land used for academic, sports, circus, entertainment and parking purpose and
iv. Building used solely for residential purpose and building used for accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.