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The services by way of renting residential dwelling for use as the residence (other than commercial purpose) has been *exempted from GST. However, based on the recommendation of the 47th GST Council Meeting, w.e.f. 18.07.2022, an exception has been carved out of the given exemption entry providing that the exemption would not be available where the residential dwelling is rented to a registered person. In such cases, the registered person receiving the services is liable to pay GST on a **Reverse Charge Basis.

*Sl. No. 12 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 and Sl. No. 13 of Notification No. 09/2017-Integrated Tax (Rate), dated 28-06-2017.

**Sl. No. 5AA of Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017

The aforesaid amendment i.e. the exemption would not be available where the residential dwelling is rented to a registered person and the registered person receiving the services is liable to pay GST on a reverse charge basis (by way of Notification No. 04/2022-CT (Rate) dated 13.07.2022 and Notification No. 05/2022-CT (Rate) dated 13.07.2022) had put registered person in dilemma as to whether GST would be leviable even when a registered person has taken a property on rent in his personal capacity. If we assume this case as a very simple, then the exemption is being denied solely on the basis that the tenant is registered under the GST law. It is very crucial to note that this interpretation is particularly affecting those who are doing their business as a proprietary concern.

It is pertinent to note that a ***writ petition was filed before the Hon’ble Delhi High Court challenging the amendment in the exemption Notification whereby the exemption which was earlier granted for renting of residential accommodation is no longer available to the GST registered tenants. The petitioner challenged the relevant entry of Notification No. 04/2022-CT (Rate) dated 13.07.2022 being ultra vires Article 14 of the Constitution of India.

The Hon’ble Delhi High Court held that where the residential dwelling is rented by the proprietor of a proprietorship firm in his personal capacity for use as his own residential dwelling and such renting is not on the account of his business but is rented on his personal account, then the exemption would continue to be available.

Further, it was also held that where the residential dwelling is rented by a partner of a partnership firm in his personal capacity for his own residential use and not accounted for in the accounts of the partnership firm, the exemption would be available. Similar position would be valid in the case of other forms of businesses.

***Seema Gupta v. Union of India [2022] 142 taxmann.com 564 (Delhi)

Now, in order to remove any ambiguity in availing the exemption benefit, the GST Council in their 48th meeting has recommended no GST is payable where the residential dwelling is rented to a registered person if it is rented it in his/her personal capacity for use as his/her own residence and on his own account and not on account of his business.

Notably, GST would be payable under reverse charge where rental expenses are accounted for in the books of accounts of the registered person even though rented in his personal capacity.

GST on rent of residential property upto 17.07.2022.

Up to 17.07.2022, there was no GST on rent of residential property to any person for residential purpose (other than Commercial Purpose) but after this date government has levied the GST on rent of residential property under RCM (Reverse Charge Mechanism) subject to one condition i.e. tenant is registered under GST.

Prior to amendment w.e.f. 18.07.2022, please note that as per Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 ‘Services by way of renting of residential dwelling for use as residence is exempt supply. The said exemption was given in Sr. No. 12 in the aforesaid Notification as under-

Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition
(1) (2) (3) (4) (5)
12 Heading 9963 or Heading 99721 Services by way of renting of residential dwelling for use as residence. NIL NIL

But if residential property has been given on rent for ‘Commercial Purposes’ than it was not an exempt supply and service is covered under ‘Forward Charge’ basis i.e. supplier has to charge GST on forward charge basis.

Now, as per Notification No. 04/2022-CT (Rate) dated 13.07.2022 (w.e.f. 18.07.2022) the aforesaid exemption given by Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 has been restricted. By the Notification No. 04/2022-CT (Rate) dated 13.07.2022, the following amendment has been made in Notification No. 12/2017-CT (Rate) dated 28.06.2017 as under-

“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;

Now by the aforesaid amendment, full exemption may be read as under-

“Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person

It means if residential property is given to a registered person, then GST shall be payable. If residential property is given to an unregistered person (i.e. not to a registered person) for use as residence only, then the exemption by way of Notification No. 12/2017-CT (Rate) dated 28.06.2017 shall remain continue.

GST on Rent is payable on RCM basis.

Please also note that the Government has amended the original Notification No. 13/2017-CT (Rate) dated 28.06.2017 by way of issuing a new Notification No. 05/2022-CT (Rate) dated 13.07.2022. As per this new Notification, a new service has been added 5AA in Notification No. 05/2022-CT (Rate) dated 13.07.2022 “service by way of renting of residential dwelling to a registered person”.

The relevant amendment in this notification is as under:-

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

(1) (2) (3) (4)
“5AA Service by way of renting of residential dwelling to a registered person.  Any person Any registered person”

Before the Notification No. 05/2022-CT (Rate) dated 13.07.2022, if residential dwelling is given on rent for commercial purposes than it is not exempt supply and service is covered under forward charge basis i.e. supplier has to charge GST on forward charge basis. But after the Notification No. 05/2022-CT (Rate) dated 13.07.2022, even supplier is a registered person, GST is payable on RCM basis. Please note that if any person (whether registered or not) gives service by way of rending of residential dwelling to a registered person, GST is payable on reverse charge basis. Notification No. 05/2022-CT (Rate) dated 13.07.2022 specified only renting of residential dwelling and does not speak about the use of same i.e. residential dwelling may be used for residential purpose or commercial purpose.

For example: If a person (whether registered of unregistered) gives his residential dwelling to a registered person, then GST shall be payable on RCM basis. It does not matter that recipient use this property for residential or commercial purpose. Earlier residential dwelling is given on rent for commercial purposes than it is not exempt supply and service is covered under forward charge basis i.e. supplier has to charge GST on forward charge basis.

In nutshell as per our understanding:

1. If residential property is given to an ‘unregistered person’ (i.e. not to registered person) for ‘use as residence only’, then the exemption by way of Notification No. 12/2017-CT (Rate) dated 28.06.2017 shall remain continue. Or

2. If residential property is given to an unregistered person (i.e. not to registered person) for use as ‘commercial purpose’, then the exemption by way of Notification No. 12/2017-CT (Rate) dated 28.06.2017 shall not be granted and supplier has to charge GST on ‘Forward Charge Basis’.

3. If residential property is given to a ‘Registered Person’ for any purpose whether residential or commercial, GST shall be payable under “RCM basis” by way of Notification No. 05/2022-CT (Rate) dated 13.07.2022

Recent amendment in exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017.

Now, as per Notification No. 15/2022-CT (Rate) dated 30.12.2022 the aforesaid exemption given by Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 has been elaborated by inserting a new explanation. By the Notification No. 15/2022-CT (Rate) dated 30.12.2022, the following amendment has been made in Notification No. 12/2017-CT (Rate) dated 28.06.2017 as under-

(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.”

*****

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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