Service Tax on Plot of Land

Query: A land owner wants to give a plot of land on rent for using other than residential purpose (like Kolkata Port Trust). Is it a taxable service under current scenario of Service Tax.

 

Answer:

In this regard, kindly note that ‘renting’ has been defined u/s 65B(41) as :

“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;

I would also like to bring into your kind notice that the term ‘immovable property’ has not been defined in the Finance Act, 1994. As per Section 3(26) of General Clauses Act, ‘immovable property’ shall include land, benefit to arise out of land and things attached to the earth, or permanently fastened to anything attached to earth.

Further, Clause (a) of Section 66E, declares renting of immovable property as a taxable service.

Hence, in view of the above provisions, renting of land would be a taxable service and service tax would be applicable on the same.

Now, we need to look into Negative List and Mega Exemption Notification to see if our service is excluded from the levy or exempted from service tax, as the case may be.

In this regard, kindly note that renting of “residential dwelling” for “use as residence” has been specifically excluded from the levy of service tax and has been kept under the Negative List as per Section 66D (m) of the Finance Act, 1994.

Further, as per Clause (d) under Negative List,  renting and leasing of agro machinery or vacant land with or without the structure when used for agriculture purpose has been specifically excluded.

Renting of certain immovable property has also been exempted by Mega Exemption Notification 25/2012 dated 30-06-2012 such as –

a)      Renting of precincts of religious place meant for general public;

b)     Service of renting of immovable property to an educational  institution;

In view of the aforesaid, service tax may be applicable on our service.

 

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Sources of Income – Income from House Property

The term ‘House property’ consists of buildings or land appurtenant to such buildings. The existence of a building is, therefore, an essential prerequisite for taxation of income from house property. ‘Building’ will include residential house (whether let out or self-occupied), office building, factory building, godowns, flats etc. But, the purpose for which the building is used by the tenant is also immaterial. It does not make any difference at all if the property is owned by a limited company or a firm. However, if the building or part thereof is used by the owner himself for the purpose of his own business then there will be no income from such portion of the house property.

Under the Income-tax Act, the basis of calculating income from House property is the ‘Annual Value’. This is the inherent capacity of the property to earn income and it has been defined as the sum for which the property might reasonably be expected to let from year to year. Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent , the latter will be the annual value.

The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner shall be subjected to Income Tax under the head ‘Income from property’ after claiming deductions (under section 24) provided such property, or any portion of such property is not used by the assessee for the purposes of any business or profession, carried on by him, the profits of which are chargeable to income tax.

 

Tips to prevent Income Tax raids

The best way to prevent an Income Tax raid is to not keep any unaccounted or undisclosed money, property or income popularly known as black money. If such a disclosure is made before its detection by the Income Tax Department, the chances of being trapped in a tax raid are minimized. A tax raid may also be conducted against a person who is in possession of undisclosed income or property belonging to someone else. It is therefore important for a person who is in possession or in custody of someone else’s jewellery or other valuables, etc. to ensure that they are duly accounted.

DO’S

1. Correct disclosure of income should be made in returns: One should make a full and true disclosure of one’s taxable & exempt income. 

2. Respond to all communications made by the department may it be a summon or notice, to prevent a tax raid: – It is absolutely necessary to fairly and properly comply with the summons. Wherever this is not possible, proper adjournment should be sought. Co-operation on the part of a person, whether he is an income tax assessee or not, will ensure prevention of a raid.

3. Once the entire picture is placed before the Assessing Officer, there is little scope or raid on the grounds of possessing undisclosed income.

4. Important vouchers and other documentary evidence for the acquisition of assets should be preserved: – It is vital to preserve important vouchers and/or other documentary evidence as proof for their acquisition. This is necessary to prove the acquisition of such assets in case an inadvertent income tax raid takes place and the assessee is called upon to prove the nature and source of acquisition.

5. If you have your assets kept lockers & safe deposit vaults :-The owner of a locker, should maintain a register recording its contents for disclosure if called upon by the income tax authorities with custodian to get a declaration from the owner regarding the nature and source of the articles to satisfy.

DON’T

> Introduce fresh capital over 10 lakhs.

> Introduce new unsecured loans exceed 25 lakhs.

> Investment more than 5 times Gross Receipts.

> Sale property for lesser amount than Govt. Valuation.

> Pay Commission above Rs. 10 lakhs.

> Declare total income less than 20% of professional receipts.

> Declare profit less than 5% of receipts if you are a contractor who’s GC Receipts exceed Rs.1 Cr.

> Adopt project completion method if you are builder.