Deduction of property tax allowed from gross amount to arrive at value of taxable service :

The taxable service of renting of immovable property is exempt from so much of the service tax leviable thereon as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies.

Interest and penalty paid to the local authority not to be treated as property tax: However, any amount such as interest, penalty paid to the local authority by the service provider on account of delayed payment of property tax or any other reasons shall not be treated as property tax for the purposes of deduction from the gross amount charged.

Property tax to be computed on proportionate basis: Further, wherever the period for which property tax paid is different from the period for which service tax is paid, property tax proportionate to the period for which service tax is paid shall be calculated and the amount so calculated shall be excluded from the gross amount charged for renting of the immovable property for the said period, for the purposes of levy of service tax.

Renting of immovable property: means any service provided or agreed to be provided by renting of immovable property or any other service in relation to such renting [Rule 2(f) of the Service Tax Rules, 1994].

Example

Property tax paid for April to September	= Rs 12,000/-
Rent received for April	= Rs 1,00,000/-
Service tax payable for April	=Rs 98,000/- (1,00,000 – 2,000) × Applicable rate of service tax

[Notification No. 29/2012 ST dated 20.06.2012]