GST Implications on services provided by way of renting of residential dwelling

Generally speaking, services provided by way of renting of residential dwelling have been a subject matter of various complicated tax implications. Some say these services are fully exempt while some say these services are completely taxable. In order to remove the confusions surrounding these services, let’s delve deep into this topic and obtain proper understanding of the same.

Legal Provisions and Analysis

CBIC issued Notification No. 12/2017-Central Tax (Rate) being effective from 1^st July, 2017, where it exempted the services provided by way of renting of residential dwelling for use as residence vide Entry No. 12, which is given as follows:

This clearly indicated that only those renting services of residential dwelling would be exempt from tax, that have been provided to ANY person for residential purposes. In other words, renting of residential dwelling for commercial use would be fully taxable under GST law.

These interpretations kept on prevailing until 13^th July, 2022 when an amendment was made to the aforesaid entry.

CBIC issued Notification No. 04/2022-Central Tax (Rate) on 13^th July, 2022, where, in relation to Entry 12 of Notification No. 12/2017-Central Tax (Rate), it stated that –

(A) in the Table, –

(b) against serial number 12, in column (3), after the words “as residence”, the words “except where the residential dwelling is rented to a registered person” shall be inserted;

With this amendment, we can say that services provided by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person shall be exempt.

Further, CBIC in Notification No. 05/2022-Central Tax (Rate) issued on 13^th July, 2022 has, in relation to Notification No. 13/2017-Central Tax (Rate), mentioned that –

In the said notification, in the Table, –

(3) after serial number 5A and the entries relating thereto, the following serial number and entries shall be inserted, namely: –

On a combined reading of the aforesaid amendments in Notification No. 04/2022 and 05/2022, following interpretations would arise in relation to services provided by way of renting of residential dwelling:

1. Solely by renting residential dwelling to any person for residential purpose would not make it exempt from tax.

2. Such services must be provided to unregistered persons so as to avail exemption of GST on the same.

3. Thus, when such services are provided to registered persons, they will be subject to GST.Moreover, when such services are taxable as stated above, the registered person shall be liable to pay GST on same under reverse charge.

4. It doesn’t matter who provides such services. The only thing that matters is whether the recipient of services is registered or not.

Moreover, another interpretation would come out that all registered persons shall be liable to pay tax on such services if in any way they avail such services for residential use.

This was disputed by many business entities, mostly by those persons, who are the owner of sole proprietorship business and consequently, living on rent in a residential dwelling since such residence has no nexus with his business. Moreover, same GSTIN would be used for the business too.

Henceforth, in order to clear the doubts raised concerning the services rendered by way of residential dwelling for residential purposes to registered persons, CBIC came up with another notification.

CBIC issued Notification No. 15/2022 on 30^th December, 2022, which was effective from 1^st January, 2023, that stated the following in relation to Entry 12 of Notification No. 12/2017 –

In the said notification,

(i) against S. No. 12, in column (3), after the entry, the following explanation shall be inserted, namely: –

“Explanation. – For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, –

(i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and

(ii) such renting is on his own account and not that of the proprietorship concern.”;

This amendment made it clear that where the services of renting of residential dwelling are provided to a registered person who fulfills the following conditions shall be exempt from GST:

– He is the owner of a sole proprietorship concern,

– He has availed such services in his personal capacity,

– He has availed such services for his own residence, and

– He has availed such services on his own account.

Thus, except above, such services when provided to other registered persons would be subject to GST payable by such registered persons under reverse charge.

Conclusion

This is the established law and legal interpretation in respect of services provided by way of renting of residential dwelling. Law in respect of such services are made very clear and precise through various notifications and thus requires every person whether or not registered under GST law to have proper understanding of the same to avoid excess tax payments in respect of such services and to prevent confusion regarding the same.