S.No 12 of the Notification No. 12/2017 dated 28.06.2017 vide Heading No.9963 has provide for the following exemption:

‘Services by way of renting of Residential dwelling for use as residence

This exemption entry would be applicable when the following factors are present:

1. Residential Dwelling

The term ‘residential dwelling’ is not defined in Central Goods and Services Tax Act, 2017 (hereinafter referred to as Act).

So, the dictionary meaning of the same is referred to, which is as follows:

As per Black’s Law Dictionary: ‘Residential dwelling means living in a certain place permanently or for a considerable length of time’

 As per Merriam Webster dictionary: ‘A shelter (as a house) in which people live’

 As per the Oxford dictionary: ‘A house or apartment or other places of residence or a place to live in or building or other places to live in’. 

Thus, residence means a place which is taken for staying regularly by the people but would not include any temporary accommodation.  On analysing the exemption entry in line with the above dictionary meanings, it appears that residential dwelling could be said to be used as a residence if the accommodation is rented for use as a living space and for a considerable period of time.

2. Considerable period of time

Certain/considerable period of stay’ is neither defined under GST nor in the Finance Act, 1994. However, section 65(105) (zzzzw) of the Finance Act 1994 (prior to 2012), provides the definition of taxable service for services provided by hotels, inns, etc, which generally involves stay for shorter period as compared to permanent or considerable time of stay, provided that the said service is providing accommodation for a continuous period of less than 3 months.

Therefore, it can be fairly concluded that if the residential property is used as a residence for a minimum period of 3 months then the aforesaid exemption could be applicable. Further, this could be judicially tested, so assessee can consider intimating department in borderline cases.

Let us examine the applicability of the aforesaid exemption in the following scenarios:

Scenario (i): Whether the exemption will be applicable if a house given on rent is used as a hotel or a lodge?

The house is a residential dwelling. Hence, it satisfies the first part of the exemption entry. Let us check whether it is used as a residence or not. In the instant case, the house is used as a hotel or lodge, where the people stay for few days for a business meeting/vacation not with an intention of regular staying (i.e. for a temporary period) and not for a considerable length of time i.e., 3 months.

Therefore, such transaction will not be covered under the aforesaid exemption entry and thereby taxable. Further, for these cases, another exemption is available as per sl.No. 14 of notification No.12/2017- Central Tax (Rate) dated 28.06.2017, if the declared tariff of a room is less than   Rs.1000/-. However, w.e.f. 27.07.2018 as per notification No.14/2018-Central Tax (Rate) dated 26.07.2018, declared tariff is replaced with the value of supply.

Similarly, in the case of Taghar Vasudeva Ambrish ,

Where the applicant has let out a Residential complex to M/s. D. Twelve Spaces Pvt. Ltd which is engaged in the business of providing affordable residential accommodation to students on a long term basis.

M/s. D TweIve Spaces Pvt. Ltd. Has entered into sublease agreement students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period varying from 3 months to Il months. Held they are like hotel rooms and the entire leased premises have 42 rooms, which can by no imagination be termed as a residential dwelling.

Even if the same is given for residential purposes, the services provided are not for use as a residence by the lessee. Hence it is not the nature of the property which determine taxability only but the purpose of letting out the property which determine taxability.

Scenario (iii): Whether the exemption will be applicable if the building is given on lease to an educational institution for use as a hostel?

Yes, the said exemption would be applicable if the building is given on lease to an educational institution for use as a hostel because, a student who enrols in a course in any educational institution would be staying in the hostel for the time until his/her course gets completed, which would generally be more than 3 months. Therefore, the conditions associated with the renting of residential dwelling would be satisfied as the same would be used as a residence (though not by the institution in the literal sense but by its students).

Further, refer Ruing of GST AAR West Bengal in the case of Borbheta Estate Pvt Ltd.

The applicant is inter alia renting dwelling units for residential purpose. Three units have been allotted to Individuals and the last one is allotted to M/s Larsen & Turbo Ltd. It appears that the dwelling units rented to Individuals are meant for residential purpose only. The dwelling unit rented to M/s Larsen & Turbo is a flat in the housing complex named South City.

The applicant argued that he is not liable to pay GST on renting or leasing of these dwelling units as they all are let out for residential purpose.

However, the Revenue is of the opinion that Exemption Notification apply to renting of dwelling units for residential purpose. lt should not be available when the dwelling unit is rented to a commercial entity like M/s Larsen & Toubro Ltd.

Ruling– The Applicant’s service is classifiable as rental or leasing service involving own/leased residential property. Applicability of Sl No. 12 of the Exemption Notification depends upon whether the dwelling unit is used as residence. lt appears from the documents produced that all the above dwelling units are being used for residence, irrespective of whether they are let out to individuals or a commercial entity.

The South City Apartment Owners’ Association certifies that the Applicant owns the flat and it is a residential flat and cannot be used for any other purpose. The said association further confirms that an employee of M/s Larsen & Toubro Ltd is staying at the flat.

The Applicant’s service of renting/leasing out the dwelling units for residential purpose is, therefore, exempt under Sl No. 12 of the Exemption Notification.

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Qualification: CA in Practice
Location: LUCKNOW, Uttar Pradesh, India
Member Since: 26 Apr 2020 | Total Posts: 40
Practising chartered accountant with the name of the firm M/s Geetanjali Pandey & Co. since 2018. I am also a Registered Valuer for valuation of Securities and Financial assets. View Full Profile

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