Applicability of GST on recovery of Electricity charges, on actual basis, relating to renting of commercial property- 

Today, there are many business entities which are operating under the roof owned by others. Also, it is not feasible for every entity to purchase land, construct building / factory on the same and commence their operations. Therefore, many manufacturing as well as service oriented business entities rent commercial buildings, factories, plants and other commercial spaces.

The consumption of electricity by manufacturing divisions as well as Information Technology units is quite high. Therefore, the electricity bill of those entities is particularly higher too. Keeping in mind that GST is applicable on commercially rented properties (building, factories, etc.) the leave and license agreement are entered into by the entities and are properly dealt with. However, the opinion with regards to the applicability of GST on the electricity amount paid by the tenant under the rent agreement is not sought at the time of rent agreement.

We as professionals at the time of scrutiny of books of accounts or at the time of dealing with the above mentioned situation should also pay attention to the applicability of GST on the amount of electricity bill paid by the tenant to the owner / electricity board. Also, attention needs to be paid towards the recovery of electricity bills by the builders / owners of commercial propertied rented by them from the tenants.

Therefore, the legal provisions regarding the same should be studied in detail. The provisions and the comments on the said provisions are as follows-

  • GST is payable on the supply of goods and service for consideration, the definition of supply in terms of Section 7 of the CGST / SGST Act, 2017 includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licensee, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
  • Further, as there are multiple services (rental, electricity supply) in the rental agreement the concept of “composite supply” has to be studied. The said concept is specifically defined in CGST / SGST act as:

Section 2 (30)

“composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. 

  •  Therefore, the services supplied by the owner to the tenant of renting of commercial space is the principal supply in the rental agreement and supply of electricity is naturally bundled and supplied in conjunction to the rental services. Therefore, the amount of electricity charges paid are part of the rental services under the rent
  • Now, the amount maybe paid by the tenant to the electricity board directly or maybe paid to the owner of the commercial space. Therefore, the term “ consideration” is also to be checked and the same is defined under CGST / SGST Act as:

Section 2 (31)

“consideration” in relation to the supply of goods or services or both includes –

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value……………….. of any act ……. Provided that ………………. 

  • The amount paid by the tenant is covered as a part of consideration as it is payment made in respect to the supply of rental services by the owner of the commercial space.
  • Further, provisions relating to valuation for supply also cover the electricity charges paid to the owner by the tenant in the value of rental services supplied. The same are contained  in section 15 of CGST / SGST Act as follows-



(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect  of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;


  • Such payment is in the nature of incidental expenses while supplying main service composite service of renting of commercial property.
  • In addition to above, as per rule 33 of the CGST / SGST Rules, in case if expenditure is incurred as pure agent of the recipient of supply and recovered subsequently, the same shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient

(ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service

(iii) The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

  • The owner of the commercial space is not supplying electricity services independently to the recipient.
  • Further, there is no specific exemption for electricity recovered as part of composite service of renting of commercial property (whereas GST exemption is available to electricity transmission entity or distribution entity itself to the person who is collecting the same in terms of Sr. No. 25 of Notification 12/2017 Central Tax (Rate) / State Tax (Rate) both dated 28th June, 2017)
  • In addition to above, making payment of electricity charges is responsibility of the property owner of the commercial property and not of the tenant as the property is owned by the owner and the electricity connection is obtained on the name of the owner. The Owner is not paying the electricity bill on behalf of the tenant.
  • Thus, the recovery of electricity charges (even at actual and backed by electricity bills) would not qualify as recovery by ‘pure agent’.

Conclusion – In view of above, electricity charges recovered as reimbursements, even if at actuals, would get covered as incidental expenses towards the value / consideration in connection with supply of renting services of commercial property which is the main supply and thereby would be liable to GST at the rate at which the rental service is liable to GST.

Also, the word commercial space is used frequently and specifically as renting of residential property / dwelling / unit is exempt from payment of GST and the incidental charges to the same would also be exempt from payment of GST.

Author Bio

Qualification: CA in Practice
Company: Yash H Goyal & Associates
Location: Pune, Maharashtra, IN
Member Since: 24 Apr 2020 | Total Posts: 1

More Under Goods and Services Tax


  1. Dhawal says:

    For composite supply, there needs to be two or more taxable supply. Here, if the assessee supplies only RENTAL + ELECTRICITY then electricity can not be said as a taxable supply. Then in such case, whether GST is payable on Electricity charges as well or not?

    1. cayashhgoyal says:

      Even if the agreement is of Electricity & Rent, any amount paid in connection to the supply made is a part of consideration and is includible in the value of supply.

      Also, as per the definition of value of supply- Any incidental expenses in relation to the supply, the same shall form part of value of supply.

      The other thing i want to highlight is if the Agreement is Rent+Electricity then the value charged would also include the electricity amount (at actuals or as agreed) therefore the electricity amount is automatically getting charged to GST.

    1. cayashgoyal says:

      Sir any amount paid by the recipient of the service or by any other person in respect of the supply of service is a part of consideration as defined in section 2(31) of the CGST/SGST Act, 2017. Therefore, even if paid by charitable trust the same would be part of rental services and is includible in the value of supply and GST is levieable on the same.

    2. cayashhgoyal says:

      Yes, even if the same is paid by the charitable trust then also GST would be levied on the electricity charges as it is related to the supply and covered under the definition of Consideration. As per Section 2(31) of the CGST / SGST Act, 2017 consideration means-

      “any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”…..

      The words at the end ‘by any other person’ will include charitable trust and hence it will form part of consideration and will form part of supply and levieable to GST.

  2. Aditi Badaya says:

    Suppose a person rents his property to some other person for manufacturing and in rent agreement nothing has been mentioned regarding electricity dues.
    But the tenant pays electricity expenses to landlord and then the landlord then pays the same to electricity board.
    In this case the situation will not covered under composite supply.
    Does this still attracts GST??

    1. cayashhgoyal says:

      Yes, the said payment will also attract GST as the payment made to landlord is in connection to the electricity of the rented property. Any payments made in connection or in relation to the supply of goods or services or both are considered as part of consideration for the Supply of said goods or services or both (Section 2(31)).

      Since, the payment is made to landlord as the landlord has rented the premises. And electricity, water are the basic necessities without which you can’t rent a property. Hence, the same is covered as the part of supply of rental services to the tenant.

      The above referred payment would also be covered under Rent agreement and would attract GST.

  3. Dilip Srivastava says:

    Yash – very Good,

    But Electricity consumption by tenant. Treating it as sale of goods / supply of services looks questionable. Do you have any reference case in this matter.

    1. cayashhgoyal says:

      Advance ruling with respect to the above subject matter is also discusses in the advance ruling application filed in Maharashtra Advance Ruling Authority. The Advance ruling application reference is TS-941-AAR-2018-NT in Mahrashtra ARA.

  4. Sanjeev says:

    Electricity Shall be paid directly to electricity company it is not reimbursement to the owner . In case it is being charged by owner than paid to electricity co. then the case would have been Different .

    1. cayashhgoyal says:

      Yes Sir, However there are many lessee’s who do not pay the rent directly to the Electricity board. The lessee reimburses the electricity expenses to the lessor. Many commercial property lessor pay the electricity charges on their won and the same are reimbursed by the lessee to the owner at actuals or as agreed in the contract. I have a AAR regarding the same vide reference no. TS-941-AAR-2018-NT filed before Maharashtra ARA.

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