The finance ministry may reduce the service tax burden for leasing of property for commercial use. The ministry is likely to do so with a deduction of about 25% from rents for repair and maintenance work while calculating the base value for the tax.

A notification to this effect is likely to be issued by the Central Board of Excise and Customs once the Finance Bill is passed by both Houses of Parliament.

Finance minister P Chidambarams 2007-08 Budget has introduced a proposal to levy service tax at a rate of 12.36% on rental of immovable property used for commercial ends.

But the proposal does not cover residential property, vacant land for agriculture, land for sports-related activities, entertainment and car parking, and immovable property for educational or religious use.

The move has drawn criticism and protests from sections of industry, with many even questioning the validity of the decision to consider leasing of property as a service.

The ministry may cut about 25% from rents for repair and maintenance
Proposal does not cover residential property, vacant land for agriculture, land for sports-related activities, etc
 
But the finance ministry has stuck to it stand that leasing of property is a service and, therefore, be brought in the ambit of service tax.

The decision is expected to hit corporates, banks, multinationals, malls, restaurants, BPOs, IT companies and multiplexes the most.

At present, most of these organisations, especially BPOs, only lease property to carry out their businesses.

Real estate agents, too, are not very happy with the proposal as they feel the move would only lead to higher rents. The current real estate boom and a lack of commercial space have combined to already trigger a rise in rents.

Service tax, realtors say, will only be an extra burden and jack up rents further.