How to save Service Tax on Rent?

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  1. brAjith

    brAjith New Member

    Can I avoid paying service tax on rent income, if I rent part of the building to my wife, who in turn sub leases or rents out that part also to the same party to whom I have rented the otjher portion of the building. That way can we split the rental income to make it below 10 lakhs per year for each of us?

    Please clarify. For income tax purposes, I shall show the total rent income in my name.

    Ajit
     
  2. Parul_Gupta

    Parul_Gupta Active Member

    hmmm....

    There is another way to do it wherein you split the Rent into Rent + Maintanence and reduce the amount received in your name.

    Let me explain this with the help of an example:-

    If the Rent received per annum is Rs. 12 Lakhs, maybe you can enter into an agreement with the tenant wherein he would pay Rs. 8 Lakhs as Rent + Rs. 4 Lakhs as Maintainence which is compulsarily required to be paid along with Rent.

    And this maintainence fee you can receive in the name of your wife.

    In this manner, as the value of services is less than Rs. 10 Lakhs in your hands as well as in the name of your wife - Service Tax wont be applicable.
     
  3. brAjith

    brAjith New Member

    Thank You for the alternative method.
    Who will then have to pay income tax for the Rs.4 lakhs income? I do not want to enter into any income tax problem, since income tax department might consider that I am trying to avoid income tax.
    Please suggest which is the safer and more legally correct method to avoid service tax on rent income slightly above Rs.10 lakhs.
    Ajit
     
  4. Parul_Gupta

    Parul_Gupta Active Member

    In the method shared by me - your wife would be earning the income by providing maintanence services and therefore she will have to pay income tax.
     
  5. Parul_Gupta

    Parul_Gupta Active Member

    In the method mentioned by you as well - your wife would be earning the rent and therefore she will have to pay income tax on the same.
     
  6. brAjith

    brAjith New Member

    Thank You for the clarification. In my method, the rent paid by my wife to me will be added to my income and deducted from her income from renting that portion.
    Which is a safer method legally to adopt from income tax and service tax points of view? I do not want to break any income tax or service tax rule.
    Ajit
     
  7. Parul_Gupta

    Parul_Gupta Active Member

    If your wife pays you the Rent - In that case, the total rent received by you would be more than Rs. 10 Lakhs.

    Although it would be received from 2 separate tenants but the total received would be more than Rs. 10 Lakhs.

    Therefore, Service Tax would be applicable. The limit of 10 Lakhs is not per tenant but per Landlord.

    So, in the method as suggested by you - Service Tax would still be applicable.
     
  8. brAjith

    brAjith New Member

    The rent paid to me by my wife will be less than the rent she gets, and the difference will be so adjusted to ensure that the total rent received by me is less than Rs.9 lakhs, so that there is no need for service tax registration also
    Ajit.
     
  9. Parul_Gupta

    Parul_Gupta Active Member

    So, that means your wife would still be liable to Income Tax as the Rent received by her would be more than the Rent paid to you.

    Moreover, you also need to take care of future years when the Rent increases.
     
  10. brAjith

    brAjith New Member

    Yes.
    Which method is safer?
    Since it is a building which is given on rent, how can some portion of the rent be shown as maintenance? Will it not be questioned, unless some furniture or equipment worth the maintenance charges are shown?
    Even in my method, will it be questioned as an indirect method of avoiding service tax and reducing income tax?
    Is there any other safe method to avoid service tax registration?
    Ajit
     
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