Indian Real Estate Forum - www.indianrealestateforum.com - View Single Post - Service tax on commercial rental property will stay

varun · 28-04-07

The 12.36% service tax on renting of commercial properties is here to stay despite the stiff resistance put up by trade and industry bodies. But official sources indicated that finance minister Chidambaram may give some relief to lessen the burden of the tax, when he replies to the debate on the Finance Bill, 2007.

The tax will come into effect when it is notified after the passage of the Finance Bill. The finance ministry is considering the inclusion of a remission scheme in the notification to lower the incidence of the tax.

It is proposed to allow a 25-30% deduction from rent towards repair and maintenance, while calculating the base value for the service tax. Also, interest repayment on borrowed capital for the construction of the commercial property could be deducted before calculating the service tax.

These concessions would be in line with those already permitted under the Income-Tax Act with regard to the tax on income from house property.

The argument that service tax on renting of commercial properties imposed by the Centre may lack Constitutional validity since land, building and real estate are "state subjects" has not cut ice with the finance ministry. Officials pointed out that the legal and constitutional validity of the tax had been studied in depth before the proposal was made in the Budget.

Similarly, the ministry is not convinced by the arguments that “renting or leasing out” of properties is not a “service” and the service tax amounts to a double taxation as the lessor or the landlord is already liable to pay income-tax on rental income.

Officials explained that the renting or leasing out properties is accepted as a service internationally and is taxed in some countries.

The Finance Bill, 2007, proposes to include “services provided in relation to renting of immovable property, other than residential properties and vacant land, for use in the course or furtherance of business or commerce”, among the taxable services. The tax is 12%, but works out to 12.36% after adding the 2% education cess and 1% secondary and higher education cess.

28-04-07	#2
varun New Member Join Date: Oct 2006 Posts: 45 Thanks: 0 Thanked 0 Times in 0 Posts	Service tax on rent is here to stay The 12.36% service tax on renting of commercial properties is here to stay despite the stiff resistance put up by trade and industry bodies. But official sources indicated that finance minister Chidambaram may give some relief to lessen the burden of the tax, when he replies to the debate on the Finance Bill, 2007. The tax will come into effect when it is notified after the passage of the Finance Bill. The finance ministry is considering the inclusion of a remission scheme in the notification to lower the incidence of the tax. It is proposed to allow a 25-30% deduction from rent towards repair and maintenance, while calculating the base value for the service tax. Also, interest repayment on borrowed capital for the construction of the commercial property could be deducted before calculating the service tax. These concessions would be in line with those already permitted under the Income-Tax Act with regard to the tax on income from house property. The argument that service tax on renting of commercial properties imposed by the Centre may lack Constitutional validity since land, building and real estate are "state subjects" has not cut ice with the finance ministry. Officials pointed out that the legal and constitutional validity of the tax had been studied in depth before the proposal was made in the Budget. Similarly, the ministry is not convinced by the arguments that “renting or leasing out” of properties is not a “service” and the service tax amounts to a double taxation as the lessor or the landlord is already liable to pay income-tax on rental income. Officials explained that the renting or leasing out properties is accepted as a service internationally and is taxed in some countries. The Finance Bill, 2007, proposes to include “services provided in relation to renting of immovable property, other than residential properties and vacant land, for use in the course or furtherance of business or commerce”, among the taxable services. The tax is 12%, but works out to 12.36% after adding the 2% education cess and 1% secondary and higher education cess.