Serviced Apartment Tax Issues

In recent years, finding lodging has become more prevalent as business travellers and group travellers. Due to their capacity to offer a variety of services and the strong demand for them, serviced apartments have grown common in India’s hospitality industry. The serviced apartments are essentially your home away from home. By using virtual keys, app-based mobile check-ins, or digital checkouts whenever practical, they offer all amenities without engaging with the front desk.

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Serviced apartments, however, do not fall under the category of homes, and there are different tax ramifications if you are in the business of renting them out.


Serviced apartment taxes

The revenue a real estate developer receives from the sale of serviced apartments that they construct. And sell to a single owner or a group of owners is regard as business income. Similar to other business income, it is taxed. For anyone who plans to operate these serviced flats as a business, the serviced apartment taxes are applicable. Let’s say someone decides to purchase a serviced apartment & start a rental company. The revenue from renting out serviced apartments will be consider business income for this person. While it may alternatively be view as income from other sources.

The rental income should be tax under Section 24 of the Income Tax Law because it is substantial, according to the IPC. The difference between residential & commercial real estate is not made by the government. Even the parking garage that is connected to your home or workplace is taxable if rented out and is deemed house property. Any taxable property that takes the form of a building is referred to as a home property. The standard deduction for rental income in India is 30%. Which is subject to taxation under the heading “income from dwelling property.” The applicant must be the rightful owner of a property in order for this standard deduction rate to applicable to income tax on house rental income in India.

Tax on Rent (Serviced Apartments)

Any money received from renting out real estate is consider rental income and therefore is subject to taxation in India as of right now. However, if the property owner has paid any fees for maintaining and preparing the property for rent. They may be able to deduct certain charges from the total income tax on rental revenue from rental housing in India. It may also be subtract if the owner plans to repay the security deposit. The security deposit becomes taxable if it is not return. If a security deposit is retain as insurance against damage, the owner may put it on their income statement and deduct it.


How to Calculate Tax on Rentals of Serviced Apartments

A rental income tax calculator should be use for figuring the service apartment taxes. If you have rented out a serviced apartment. Follow these procedures to determine the approximative serviced apartment taxes you would owe:

  • Find the property’s yearly gross value (GAV). The annual rent collected is the GAV for rental property.
  • Don’t pay property taxes. Property tax is deductible if it is paid in advance.
  • Determine the Net Annual Value, which is the distinction between the GAV and the property tax.
  • A 30% standard deduction on GAV rental revenue is permit by Section 24.
  • Reduce the size of the mortgage. Under Section 24, interest paid on a mortgage during the year may be deducted. A rental property’s whole interest payment may be written off as a tax deduction.
  • The total that results is the rental income that is subject to tax in India at the applicable rental income tax rate.


GST for serviced residences

GST is automatically apply on a property when it is rent out as a rental building. And the income from such property surpasses 20 lakhs in a year. In this case, the amount of Goods & Services Tax that must be paid equals roughly 18% of the total annual income (GST).

The GST is calculated and added to the entire rent in the case of serviced flats rented on a monthly basis. The GST (either 9% CGST & SGST or 18% IGST) is calculated based on the total payable rent when an invoice is prepared at the end of each period.


Summary of the Service Apartment Tax

Commercial buildings that can be hired for both short- and long-term stays are called service apartments. They provide the impression of being a second home. This kind of subletting is classified as a service supply and is therefore taxable. In accordance with governmental regulations, the owners must pay serviced apartment taxes.




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