JULY 18, 2022

By Natasha Jhaver, Chartered Accountant, G N Law Associates

THE renting of residential dwelling for use as residence is exempt from the levy of GST vide S. No. 12 of the Notification 12/2017 Central Tax (Rate) dated 28.06.2017. The said entry is reproduced below.

47th GST Council Meeting

In the 47th meeting of the GST council it has been decided to withdraw the exemption when the residential dwelling is given on rent to a "registered person" and also introduce reverse charge mechanism in this regard.

In order to give effect to the above decision, vide Notification 4/2022 Central Tax (Rate) Dt. 13.07.2022, the above exemption under S.No. 12 of Notification 12/2017 Central Tax (Rate) Dt. 28.06.2017 has been amended and after such amendment, the exemption reads as under.

As a result, when a residential dwelling is rented to a registered person, GST is applicable.

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases the liability may be cast on the recipient under the reverse charge mechanism. Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply. Several services are notified for reverse charge vide Notification 13/2017 - Central Tax (Rate) dated 28/06/2017.

Vide notification 05/2022 - Central Tax (Rate) dated 13th July 2022 a new S.No. 5AA has been inserted in Notification 13/2017 which is applicable from today, 18 th July 2022.

As per the newly inserted clause, the GST shall be paid by the recipient of renting of residential dwelling, if the recipient of such service is registered under GST. The newly inserted entry is reproduced below -

Table

Following are some of the scenarios -

Scenario 1 - A Company registered under GST has taken on rent a residential flat for its Director's residence. The company will be liable to pay GST on the rent under RCM from 18.07.2022.

Scenario 2 - Instead of the Company, if the Director (who is unregistered) himself takes on rent the residential flat, the activity would be exempted from GST and neither the owner of the house nor the Director will be liable to pay any GST.

Scenario 3 - A Company registered under GST, rents out a residential property to an unregistered person. The rent will be exempt in the hands of the Company as it is provided to an unregistered person and will be covered by the exemption notification.

Scenario 4 - A Company rents out a residential property to M/s ABC, a Firm registered under GST. In such a case, the GST on such a rent will be payable by the recipient i.e. M/s ABC under RCM. In this scenario, even if the company, owner of the property is registered under GST, only the recipient of service is liable to pay GST under RCM.

Eligibility of ITC on the GST paid on RCM basis on the residential dwelling by the registered person.

As per the provisions of the GST, the taxpayers are entitled to avail ITC when the goods or services are used or intended to be used in the course or in furtherance of their business. As per clause (g) of sub-section (5) of Section 17, "goods or services or both used for personal consumption" are not entitled for ITC. The phrase personal consumption has to be understood with reference to the taxpayer. If the company obtains a residential dwelling on rent for use by its employees, such use is in furtherance of the business of the company and not for the personal consumption of the company. But, if an individual, who is a proprietor of a firm obtains a residential dwelling on rent for his use, the same shall not be entitled for ITC for him, as it is for his personal consumption.

The above discussion is tabulated as below.

[The views expressed are strictly personal.]