Service tax on lease rent and demand from builder

Hello Sir,

I have bought a flat last year  in noida in subvention plan and took a loan from bank , now my question is:

1. Is there any service tax on lease rent given on flat , I checked online and saw few articles which says lease rent on the property for residential purpose is exempted from lease rent . Could you please confirm with some proof?

2. Also on every demand bank asks me for the service tax , could you also confirm if there is service tax needs to pay by buyer on demand from builder
Asked 8 months ago in Service Tax from Noida, Uttar Pradesh
Dear Sir,

How did lease rental come into picture. As you have purchased the house under subvention scheme. Your builder must be paying EMI to bank. To whom are you paying lease rental?

If it is in relation to some other case then also u are right service tax is not applicable on the renting of immovable property used for residential purpose. Even if service tax is applicable you don't need to worry, lessor will be liable to pay service tax and not you. if he is charging service tax to you then you should worry.

I did not understand your second question which demand are you talking about. you mean EMI paid by your builder?
Abhishek Dugar
CA, Mumbai
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1 no service tax is applicable on renting of immovable property for residential use........refer negative list in service tax

2. Query 2 not clear, please elaborate
Anuj Agarwal
CA, Aligarh
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Dear Sir,

1. As per the recent amendment if the flat size is over 2000sq feet or the Sale price is over 1 Crore then the amount of Service Tax is increased to 4.35%. So if you fall under any of the above criteria's then you will be liable to pay a higher service tax, if not then then the old rate shall prevail.

2. I could not understand how can the builder demand Rent from the bank, when the property is not even completed. What is the Lease rent for and what does your agreement say about it ?

Trust this clarifies your query. 

Feel free to get back/ call back for any further clarifications. 

Thanking You. 

Regards,
Rohit R Sharma
BCOM, ACA, LLB - GEN, CERT. FAFP 
Rohit R Sharma
CA, Mumbai
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Answer to Q.-1 : Service Tax (ST) rate increased from 25% to 30% (of 14.5%) ie 3.625% to 4.2% upto 15-11-15 & further will be  4.35% due to Increment in SBC (Swach Bharat Cess). 

Service Tax Rate Abatement  Changes Made Vide Budget 2015 and Notification No. 8/2015-ST, Dated: March 01, 2015. 

Answer to Q.-2 : Lease rent is purely part of ST & it is covered under definition of Services ..-----

(iv) The purpose of the service is:
(a) the transfer or conveyance of the property or the proposed transfer
or conveyance of the property (e.g., real estate services in relation
to the actual or proposed acquisition, lease or rental of property,
legal services rendered to the owner or beneficiary or potential
owner or beneficiary of property as a result of a will or testament);.
Shiv Kumar Agarwal
CA, Delhi
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Answer to Q.-1 : Service Tax (ST) rate increased from 25% to 30% (of 14.5%) ie 3.625% to 4.2% upto 15-11-15 & further will be  4.35% due to Increment in SBC (Swach Bharat Cess). 

Service Tax Rate Abatement  Changes Made Vide Budget 2015 and Notification No. 8/2015-ST, Dated: March 01, 2015. 
At present, two rates of abatement have been prescribed for services of construction of complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in case of a residential unit having carpet area of less than 2000 square feet and costing less than Rs 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both subject to fulfilment of certain conditions prescribed therein. A uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions.

(Amendment in entry at S. No. 12 of notification No. 26/2012-ST refers)



Answer to Q.-2 : Lease rent is purely part of ST & it is covered under definition of Services ..-----

(iv) The purpose of the service is:
(a) the transfer or conveyance of the property or the proposed transfer
or conveyance of the property (e.g., real estate services in relation
to the actual or proposed acquisition, lease or rental of property,
legal services rendered to the owner or beneficiary or potential
owner or beneficiary of property as a result of a will or testament);.
Shiv Kumar Agarwal
CA, Delhi
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1. construction of immovable property is subject to service tax and the service tax has been recently increased w.e.f. 1.4.2016 and new rate of service tax would be 4.35% and it is further proposed to be increased to 4.5%.

2. why builder is asking for lease rental from bank. is it written in your agreement with the builder. if yes, then we need to read the agreement.

Thanks and Regards
CA Abhishek Dugar
caabhishekdugar@gmail.com
Abhishek Dugar
CA, Mumbai
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