Property owners who have rent out their premises for commercial purposes will have to pay 10% tax on rental income with effect from June 2007, Delhi High Court has ruled. In addition, the government can levy interest of 12-18% for this period, which will further increase the burden.
The interest burden will be around 12% in case of June 2007 to March 2011 and will rise in line with the government decision. And, there could be further burden in store as the on the question of penalty due to non-payment of tax, the Delhi High Court has left it open for the government to examine whether any waiver or exemption can be granted. "The tax will be applicable on all property owners who earn Rs 10 lakh or more from letting out their premises for commercial activity," said RS Sharma, tax lawyer. The Delhi High Court ruling would be applicable to all real estate transactions in malls and shopping establishments as well as those who have let out residential premises for commercial purposes.
While service tax is an indirect tax in several cases the higher tax burden may have to be borne by the landlord as the tenant would have vacated the premises. In a case involving Home Solutions Retails (India) Ltd, a larger Bench of the Delhi High Court upheld the constitutional validity of retrospective amendment by Finance Act, 2010 in definition of taxable service of commercial renting. An earlier decision of Delhi HC in case of Home Solutions was overruled. "As a result, landlords are liable to pay service tax on commercial renting with effect from June 2007,"Sharma said.
Tag: Property owners, rent, commercial, government, service tax