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K.R. Srivats

Property tax paid to local bodies also allowed as deduction

New Delhi May 22 The Government has softened the blow on service tax on renting of immovable properties for commercial use.

It has now said that service tax is payable on the rental amount received less the actual amount of property tax paid.

Simply put, the property tax paid to local bodies can be deducted from the rental amount and the service tax be paid on the net amount.

However, no deduction would be allowed on any interest, penalty paid to the local authority by the service provider on account of the delayed payment of property tax.

Benefits

Official sources pointed out that the move to allow deduction of property tax would particularly benefit those renting commercial properties in new shopping complexes.

"In new shopping complexes, the property taxes are high and, therefore, there will be good relief", sources said.

The Government has also allowed self-adjustment of service tax for a period of one year in the case of renting of immovable property for commercial use.

"There could be a situation where property tax is paid after the payment of service tax on the rental and, therefore, deduction of property tax paid for rental could not be availed at the time of service tax payment. In such cases, self-adjustment of excess service tax paid can be done up to a year", a Finance Ministry official said.

Under the renting of immovable property for commercial use, the Finance Ministry has already specified that renting include letting, leasing, licensing or other similar arrangement and that the contract is for right-to-use an immovable property for consideration.

The Government has, however, not agreed to real estate industry demands for switching the incidence of service taxation to the service recipient from the service provider.

More Stories on : Financial Policy | Taxation | Real Estate & Construction

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