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Services by way of renting of residential dwelling
Services by way of renting of residential dwelling

Negative List Page

INTRODUCED: With Effect From 1st July 2012
 
Contents
Definition
Scope
Service Tax Clarification
Relevant Circulars
 
 
DEFINITION:

Negative List Entry;

As per the Section 66D (m) Services by way of renting of residential dwelling for use as residence would be covered in the negative list.

According to Section 65B (41) "renting" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property;

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SCOPE:
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Important Aspect in this negative entry is

(i) The Service should be of renting –

(ii) Renting should of Residential Dwelling –

(iii) Residential Dwelling shall be used as Residence

1.What is a ‘residential dwelling’?

The phrase ‘residential dwelling’ has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include –

I. Hotel,

II. Motel,

III. Inn,

IV. Guest House,

V. Camp-site,

VI. Lodge,

VII. Houseboat,

or like places meant for Temporary stay.

2. Would the nature of renting transactions explained in column 1 of the table below be covered in this negative list entry?

1 2
If….. Then……
(i) a residential house taken on rent is used only or predominantly for commercial or non-residential use. The renting transaction is not covered in this negative list entry. Hence would be covered under Service Tax
(ii) if a house is given on rent and the same is used as a hotel or a lodge The renting transaction is not covered in this negative list entry because the person taking it on rent is using it for a commercial purpose.
(iii) rooms in a hotel or a lodge are let out whether or not for temporary stay The renting transaction is not covered in this negative list entry because a hotel or a lodge is not a residential dwelling.
(iv) government department allots houses to its employees and charges a license fee Such service would be covered in the negative list entry relating to services provided by government and hence non- taxable.
(v) furnished flats given on rent for temporary stay (a few days)

such renting as residential dwelling for the bonafide use of a person or his family for a reasonable period shall be residential use.

But if the same is given for a short stay for different persons over a period of time the same would be liable to tax.

 
Service Tax Clarification:

Would renting of a residential dwelling which is for use partly as a residence and partly for non residential purpose like an office of a lawyer or the clinic of a doctor be covered under this entry?

This would also be a case of bundled services as renting service is being provided both for residential use and for non residential use. Taxability of such bundled services has to be determined in terms of the principles laid down in section 66F of the Act. Accordingly as per Section 66F(3)(b) if various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax.

For Example: A house is given on rent one floor of which is to be used as residence and the other for clinic / office / press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

 
RELEVANT SERVICE TAX CIRCULARS/INSTRUCTIONS/TRADE NOTICES:

 Taxation of Services - An Education Guide dated 20.06.2012

 

 
 

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