Renting of immovable property has been made a taxable service w.e.f. June 1, 2007, provided it is intended for commercial or business use under Section 65(105)(zzzz) of the Finance Act, 2007. While the valuation of such service shall be governed by Service Tax (Determination of Value) Rules, 2006, Notification No. 24/2007-ST dated May 22, 2007, provides for exemption in respect of property taxes.

This Notification 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. In other words, service tax is payable on the rental amount received less 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 charged shall not be allowed.

If property tax is paid for a period which is different from the rental period, property tax proportionate to the rental period shall be calculated and the amount so calculated shall be excluded from the rental amount received for the purpose of levy of service tax.

The condition for exemption or deduction from gross value is that such tax should be a tax on property and levied by and paid to local authority. It could be property tax, land and building tax, house tax, etc., by whatever name called.

It will not cover any Union taxes such as sales tax, stamp duty, capital gains tax, wealth tax, and so on, which are not payable to local authorities.

SANJIV AGARWAL

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