Immovable property used in the course or promotion of business or commerce which includes use of immovable property as factories, office buildings, warehouses, theaters, exhibitions halls and multiple use buildings.
The finance Act of 2008 has inserted an explanation to the definition of immovable property to clarify that renting of immovable property shall include allowing or permitting the use of space in an immovable property irrespective of the transfer of possession or control of such immovable property.
Service tax was sought to be levied on renting of immovable property for use in the course or furtherance of business or commerce but does not include-
- Renting of immovable property by a religious body.
- Renting of immovable property to an education body, imparting skill or knowledge or lessons on such subject or field other than commercial training or coaching center.
An exemption notification No.24/2007 dated 22/05/2007 was issued by the Ministry of Finance in exercise of the power conferred by section 93(1) of the Finance Act 1994.
According to this notification, service tax was payable on the rental amount received minus the actual amount of property tax paid. 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 any other reasons cannot be treated as property tax for the purpose of this exemption and hence deduction of such amount from the gross amount was not allowed.
Service tax paid on input services in the nature of construction services or works contact service that are used in the construction of an immovable property which is mean to be rented or leased will not be eligible of CENVAT credit for those who provide renting of immovable service.
The constitutional validity of the levy of service tax on rentals on such immovable property is doubtful. Mere renting of office space does not involve service. Many individuals and associations have filed writ petitions before different High Courts across India. Now the matter is before Supreme Court, but some High Courts have stayed the recovery of service tax till the final decision by the Supreme Court. With this Government of India amended the definition taxable service as any service provided or to be provided to any person by any person by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of business or commerce.
Accordingly mere renting is also brought under service tax levy with retrospective effect by this amendment, service tax is payable from 01.06.2007 i.e. from the introduction of levy.Only the amount that is received in the nature of rent in respect of immovable property is covered under declared service and accordingly service tax is applicable on such amount.
Again talking about the budget of 2010, the proposal was to amend the definition of renting of immovable property services that the activity of renting is itself a taxable service. This amendment was proposed to be made with retrospective effect from June 1, 2007. The amendment now extends the service tax to the rent of vacant land where there is an agreement or contract between lesser and lessee for undertaking the construction of a building or structures thereon for the purposes of business or commerce. These amendments will come into force from a date notified after the enactment of the finance bill 2010. Once that happened, the tax ould be payable with effect from June 1, 2007.
All services are taxable to service tax at 14 % unless they are covered by any of the entries in the negative list or are covered under the mega exemption notification. Renting of immovable property has been specifically mentioned as part of declared service. Thus, rent on immovable property is liable to service tax at 14%.