Why to Construe Renting Real Estate as a Service?

June 15, 2007	(2 votes, average: 4 out of 5)  Loading ...
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The growth rate of liberalization in service sector in India will now be determined with the help of a new parameter i.e. the transition of the country from a high rate direct tax regime to an aggressive indirect tax.

Currently, the framework of sales tax in India is believed to be highly burdensome which has been tried to ease out through the VAT.

Service tax was introduced in India in 1994, as an immediate outcome of liberalization at the rate of 5% on three services which has today extended to more than hundred services. The effective rate has shot up to 12.5% on the gross amount charged.

The service tax in India included the items whose characterizations like services were indisputable. This comprises of brokerage, courier, and other maintenance services in sectors which eliminates or minimizes the incidence of direct tax.

Service tax on real estate development services was first imposed in 2004-2005 and included building repairs and changes. Then, the taxes were made liable for construction activity of all buildings meant for commercial or industrial purpose.

The service tax is also applicable to the renting of immovable property if actually used for furtherance of existing business or commerce. This undoubtedly brought tensions in landlord-tenant relationships, in existing leases.

A large part of the property tax is borne by the lessee as the amount is generally factored into the rent. The norm chiefly adds to the woes of small towns, where buildings combine both residential and commercial activity.  Here, the residents are to borne the heat of the tax without any reason.

Although, renting property in India is brought under the ambit of real estate but there is no clarity on what basis the rentals can be seen as a service.

News Published Under:   Real Estate India, Real Estate Trends |

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