GST: No Deduction for Property Tax from Rent Value of Immovable Services Allowed, KAR AAR

Authority for Advance Ruling (AAR) Karnataka has held that no deduction towards property tax The constant demand from the public has made BBMP extend the deadlines for availing a 5% rebate on property tax from earlier April 30 to current May 31, 2020. Read more from the rent value of immovable services (RIS) is allowed. Additionally, Notional interest on the security deposit will be also considered to know the total income from rental, only if it affects the monthly rent.

This ruling comes from AAR Karnataka in a matter where M/s Midcon Polymers Pvt Ltd. is the applicant, having plans for commercial property rental business at monthly rent and associated business. The applicant intends to enter into a contract with an educational institution in Bangalore for renting of immovable property The Authority of Advance Ruling (AAR) Maharashtra came up with a ruling that clarifies that immovable properties with no distinct goods and services. read more. They don’t have any taxable activities other than the activity of Providing immovable property on lease. They are looking for exemption because turnover of their business is less than Rs 20 lakh.

The Applicant reached AAR seeking advance ruling on issues whether there can be a deduction of property taxes and other statutory dues and whether notional interest on the security deposit should be taken into consideration for the purpose of arriving at the value of rental income.

The applicant reached out to the Authority of Advance Ruling (AAR) Get to know about AAR (Authority for Advance Rulings) under GST India along with its mechanism. Also, we have described its objectives, powers, orders, etc seeking clarity on issues where property tax and other statutory dues could be deducted or not and whether a notional value of interest should be charged on the security deposit for the purpose of reaching at the correct value of income through rents. They also want to know whether they are eligible for exemption of tax as they are under the general exemption of Rs.20 lakh.

In this matter the ruling came from AAR Karnataka’s two-member bench consisting Dr. Ravi Prasad M.P. and Mashood ur Rehman Farooqui and they ruled that A security deposit is an interest-free refundable deposit, and it need be returned to the lessee at the end of the lease period, thus it can’t be treated as a supply of rent of immovable property service.

However, It will attract tax if the total amount or even part of it has not been returned to the lessee at the end of the lease period. By observing that the Notional interest to be earned by the applicant for the rental services, is not by the recipient of the service but by someone else, AAR said that “Notional interest has to be considered as part of the value of supply of service, if and only if the said notional interest influences the value of supply and is leviable to GST (Goods and Services Tax) along with the monthly rent at the rate applicable thereto.”

The authorities also held that the applicant party is eligible for a basic exemption of “Rs 20 lakhs for registration purposes subject to the condition that their annual turnover” consist of monthly rent and Notional interest if it affects the value of the supply, doesn’t cross the threshold the limit.