GST implications on Residential Dwellings (25 FAQs)

Frequently Asked Questions on GST implications on Renting of Residential Dwelling

Background:

Having shelter is a basic necessity for every human, in addition to the food and water. But what if these residential dwellings become costlier? Recently, Central Board of Indirect Taxes and Customs (CBIC) vide Notification No. 05/2022-Integrated Tax (Rate) dated 13^th July 2022, withdrew exemption on renting of residential dwellings to a person registered under Goods and Service Tax (GST), which would become effective from 18^th July 2022.

GST implications prior to 18^th July 2022:

Earlier CBIC by virtue of Notification No. 09/2017-Integrated Tax (Rate) dated 28^th June 2017 exempted payment of GST against service of renting a residential dwelling used for the purpose of residence irrespective of the registration status of the supplier or the recipient of services as the case may be.

However, the same exemption was not there in case where the renting of residential dwelling is for a purpose other than residence i.e., for the purpose of business.

Recently, Maharashtra Authority of Advance Ruling, in the matter of M/s Kasturi & Sons Ltd., held that GST exemption is provided by the nature of the property and its usage and not by the status of the recipient and therefore, renting of residential unit to a corporate house for the purpose of residence would stand exempt from levy of GST.

GST implications w.e.f. 18^th July 2022:

However, w.e.f. 18^th July 2022, the aforesaid exemption shall stand withdrawn where the residential dwelling is rented out to a person registered under GST. Accordingly, usage of residential dwelling is not the deciding factor for taxability rather the status of the recipient would play vital role to determine the taxability under GST laws.

In other words, renting of residential dwelling by any person to a person registered under GST would trigger GST, irrespective of the fact that such residential unit is used for residential purposes or commercial purposes.

Further, by virtue of the Notification No. 05/2022-Integrated Tax (Rate) dated 13^th July 2022, the onus of payment of GST on services by way of renting of residential dwelling to a registered person is lies upon the registered recipient of service, irrespective of the registration status of service provider. In other words, GST should be discharged by the recipient of service of renting of residential dwelling under Reverse Charge Mechanism (RCM).

In order to interpret the aforesaid amendment, we have come out with the 25 important questions relevant for the industries to consider in their business. The article covers some general clarifications on different possible questions/scenarios.

Question No. 1: I am a registered person under GST, providing my residential property on rent for residence purpose to a registered person under GST, what would be the GST implications?

Answer No. 1: Since, the service recipient is registered under GST, registration of service provider is irrelevant in this case. Further, registered recipient would require to discharge GST under RCM and registered service provider would not require to pay taxes on this transaction.

Further, purposes for which such property is being used by the recipient shall not be relevant here.

Question No. 2: What type of invoice(s) should be raised by registered person(s) on the transaction specified in question no. 1 above?

Answer No. 2: The registered service provider would require to raise normal tax invoice mentioning all required particulars as enumerated under Rule 46 of the CGST Rules.

However, service provider should mention the word “yes” after the phrase “whether the tax is payable on reverse charge basis” on the face of the invoice.

Further, in terms of S. 31(3)(f) and (g), the registered recipient would require raise self-invoice and payment voucher for receipt of renting services.

Question No. 3: Whether the registered recipient would be eligible to avail Input Tax Credit (ITC), post payment of taxes under RCM, on the transaction specified in question no. 1 above?

Answer No. 3: Since, the use of the residential property is for personal purposes only, it is immaterial that the same would have been used by Directors or employees or any other persons of such registered recipient.

We understand that, the said transaction would fall under the umbrella of blocked credits in terms of Section 17(5)(g) i.e., goods or service or both used of personal consumption.

Hence, the registered service recipient would not be eligible to avail ITC on such transaction.

Question No. 4: I am a registered person under GST, providing my residential property on rent for commercial purpose to a registered person under GST, what would be the GST implications?

Answer No. 4: Since, the service recipient is registered under GST, registration of service provider is irrelevant in this case. Further, registered recipient would require to discharge GST under RCM and registered service provider would not require to pay taxes on this transaction.

Further, purposes for which such property is being used by the recipient shall not be relevant here.

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Question No. 5: What type of invoice(s) should be raised by registered person(s) on the transaction specified in question no. 5 above?

Answer No. 5: Please refer our answer provided for question no. 2 above.

Question No. 6: Whether the registered recipient would be eligible to avail Input Tax Credit (ITC), post payment of taxes under RCM, on the transaction specified in question no. 4 above?

Answer No. 6: Since, the use of the residential property is for commercial purposes, we understand that, the said transaction would not fall under the umbrella of blocked credits in terms of Section 17(5)(g) i.e., goods or service or both used of personal consumption.

Hence, the registered service recipient would be eligible to avail ITC on such transaction subject to the other relevant provisions of GST Act read with corresponding Rules.

However, it is pertinent to note that, one must check-out legality w.r.t. use of residential property for commercial purposes with respective other Central/State/UT laws.

Question No. 7: I am a registered person under GST, providing my residential property on rent for residence purpose to an un-registered person under GST, what would be the GST implications?

Answer No. 7: Since, the service recipient is un-registered and property so rented out is being used for residence purposes, the said transaction would still be covered under the umbrella of exempt supply by virtue of Notification No. 09/2017-Integrated Tax (Rate) dated 28^th June 2017. Therefore, the said transaction would be considered as exempt supply.

Question No. 8: What type of invoice should be raised by registered person on the transaction specified in question no. 7 above?

Answer No. 8: In terms of S. 31(3)(c) of the CGST Act read with Rule 49 of the CGST Rules, registered service provider would require to issue Bill-of-supply in this case.

Question No. 9: I am a registered person under GST, providing my residential property on rent for commercial purpose to an un-registered person under GST, what would be the GST implications?

Answer No. 9: Since, the property so rented out is used for the commercial purposes and supplier being registered under GST, the said transaction would not be covered under the ambit of exempt supply by virtue of Notification No. 09/2017-Integrated Tax (Rate) dated 28^th June 2017.

Therefore, the said transaction would be exigible to GST in the hands of service provider under forward charge mechanism.

Question No. 10: I am an individual not registered under GST, providing my residential property on rent for residence purpose to a registered person under GST, what would be the GST implications?

Answer: No. 10: Since, recipient is registered under GST, he would require to discharge GST under RCM and unregistered supplier would not be required to take any action in this regard.

Question No. 11: Does it make any difference if the property specified in question no. 10 above used for commercial purposes?

Answer No. 11: No, as recipient is register under GST, he would require to discharge GST under RCM. Purposes for which such property is being used by the recipient shall not be relevant here.

Question No. 12: Whether the registered recipient would be eligible to avail Input Tax Credit (ITC), post payment of taxes under RCM, on the transaction specified in question no. 10 and 11 above?

Answer No. 12: Please refer our answers provided for question no. 3 and 6 above.

Question No. 13: I am an individual not registered under GST, providing my residential property on rent for residence purpose to an unregistered person under GST, what would be the GST implications?

Answer No. 13: Since, recipient is not registered under GST and the rented property is used for residence, No GST would be leviable on this transaction. Status of registration of service provider is irrelevant in this case.

Question No. 14: Does it make any difference if the property specified in question no. 12 above used for commercial purposes?

Answer No. 14: No, as recipient is not registered under GST and the rented property is used for commercial purposes, No GST would be levied on this transaction.

It has been assumed that supplier is not liable to obtain the registration under GST laws. Otherwise, the same would have been taxable in the hands of service provider as discussed in question no. 9 above.

Question No. 15: I am an individual not registered under GST, providing my residential property on rent for residence purpose to a person whose registration status under GST is un-known to me, what would be the GST implications?

Answer No. 15: W.e.f. 18^th July 2022, we must suggest that every landlord must acquire the registration status of his tenant. However, if the same has not been provided by the tenant, by whatever reason, there is no liability on the unregistered person to discharge GST, subject to the provisions of S. 22, 23 & 24 of the CGST Act.

Question No. 16: What would be the registration requirement in any of the aforesaid scenarios mentioned in Question no. 10,11,13,14 and 15?

Answer No. 16: The provisions of registration under GST are governed by S.22 of the CGST Act, wherein liability to obtain registration would arise only when aggregate turnover of the person exceeds threshold limit. Furthermore, S. 2(6) of the CGST Act, explains meaning of “aggregate turnover” which includes all taxable supplies, exempt supplies and export turnover. Moreover, S. 2(108) of the CGST Act defines “taxable supplies” which means a supply of goods or services or both which is leviable to tax under CGST Act.

Supplies on which recipient is required to discharge GST liability would also become part of taxable supplies because of the fact that the said supply is taxable under GST, irrespective of the fact that who is paying the tax.

Therefore, on conjoint reading of aforesaid provisions, the person is liable to take registration under GST only if its aggregate turnover, including supply on which recipient is paying tax under RCM, exceeds threshold limit.

Further, in case of inter-state supplies, service provider would require to take mandatory registration under GST, irrespective of the value of aggregate turnover.

Question No. 17: What would be the Service Accounting Code (SAC) to be used, for letting out residential dwelling, for the purpose of reporting it on the invoice and GSTR-1 as well?

Answer No. 17: The SAC for renting residential dwelling would be 997211 i.e., “Rental or leasing services involving own or leased residential property”.

Question No. 18: What would be the applicable Rate of Tax on aforesaid scenarios?

Answer No. 18: The applicable rate of tax would be 18%, either for payment of tax under forward charge or reverse charge.

Question No. 19: I am an IT professional working as freelancer. Since, my gross receipt exceeds INR. 20 Lakhs, I also obtained registration under GST. However, I am using my parental home as a principal place of my business. Further, I used to pay monthly rent to my mother (an un-registered person). Whether I require to pay GST under RCM?

Answer No. 19: Yes, Since, the service recipient is registered under GST, registration of service provider is irrelevant in this case. Further, registered recipient would require to discharge GST under RCM and unregistered service provider would not require to pay taxes on this transaction.

However, it is pertinent to note that, one must check-out legality w.r.t. use of residential property for commercial purposes with respective other Central/State/UT laws.

Question No. 20: Since, the applicability of RCM would be effective from 18^th July 2022, do I need to pay RCM on the transaction before 18^th July 2022, let’s say I received a rent invoice for the month of July, 2002 on 01st July 2022 and I made payment on the same day, does this provision applicable to me for the period July 2022, fully or partially?

Answer No. 20: In terms of S.14 of the CGST Act, since, invoice is issued and payment has made before the applicability of RCM provision, the same shall be govern by the law prior to 18^th July 2022, i.e., registered recipient would not require to pay tax under RCM for the month of July 2022.

Further, there would not be any partial applicability of RCM provisions w.e.f. 18^th July 2022 in this case.

Question No. 21: What would be the scenario for question no. 20 above, if I made payment of rent on 20^th July 2022?

Answer No. 21: In terms of S.14 of the CGST Act, since, invoice is issued prior to the change of taxability, the same shall be govern by the law prior to 18^th July 2022, i.e., registered recipient would not require to pay tax under RCM for the month of July 2022.

Question No. 22: What would be the scenario for question no. 20 above, if I receive invoice on 20^th July 2022?

Answer No. 22: In terms of S.14 of the CGST Act, since, payment is made prior to the change of taxability, the same shall be govern by the law prior to 18^th July 2022, i.e., register recipient would not require to pay tax under RCM for the month of July 2022.

Question No. 23: What would be the scenario for question no. 20 above, if I receive invoice and made payment on 20^th July 2022?

Answer No. 23: In terms of S.14 of the CGST Act, since, the invoice is received and payment is made post change in taxability, RCM provision would trigger and registered recipient would be liable for payment of taxes under RCM.

Question No. 24: I am a registered person under composition scheme of GST, procures residential dwelling from an un-registered person, whether I need to pay tax under RCM for procuring said renting services of residential dwelling?

Answer No. 24: Yes, in terms of S.10 of the CGST Act, a person register under composition scheme would also require to adhere the provision of RCM u/s S.9(3) of the CGST Act.

Further, the recent amendment does not provide any exemption to composition dealers. Therefore, the registered composition dealer would require to pay tax under RCM for use of such residential property.

Question No. 25: Does it make any difference if the service provider is regular registered person in question no. 24 above?

Answer No. 25: No. Since, the RCM provision is applicable on the registered recipient, which is the composition dealer in this case, the registered composition dealer would require to pay tax under RCM for use of such residential property, irrespective of the registration status of service provider.

Disclaimer: The above questions and answers are purely interpretation of the author and the same is provided only for knowledge sharing purposes. The same has been based on the understanding drawn from the relevant notification issued by the Board in this behalf. The contents provided herein should not be considered, by the reader, as legal advice on any issue/matter. The author takes no responsibility for its reliability or accuracy and hence, this document is subject to independent evaluation of reader basis the notification issued by the Government, which alone shall have the statutory force. Further, no part of this document may be reproduced or copied in any form or by any means [graphic, electronic or mechanical, including photocopying, recording, taping or information retrieval system] or reproduce on any disc, tape, perforated media or other information storage device, etc.

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