GST on renting of Residential & Commercial Property in India

Under the Central Goods and Services Tax Act, 2017 (“CGST Act”), GST is levied on the supply of goods and services as defined under Section 7, unless specifically exempted through notifications issued under Section 11. The definition of “supply” under Section 7(1) includes various forms of transactions, such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration in the course or furtherance of business. Further, Section 7(1A) clarifies that certain transactions qualifying as a supply under Section 7(1) are to be treated as either a supply of goods or a supply of services as listed in Schedule II of the CGST Act.

Schedule II prescribes the activities which are to be treated as supply of goods or supply of services. Entry No. 2 of Schedule II of the CGST Act provides as under:-

“2. Land and Building

(a) Any lease, tenancy, easement, licence to occupy land is a supply of services.

(b) Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”

Initially, renting a residential dwelling for personal use was ‘exempt’ from GST vide Sl. No. 12 of Notification No. 12/2017-CT (Rate) dated 28.06.2017, while any other rental income was taxable @ 18% under the Forward Charge Mechanism (‘FCM’). It is pertinent to note that the Central Government has issued a Notification No. 11/2017- Central Tax (Rate), dated 28-06-2017 [i.e. Notification for CGST Rate on ‘Services’] for intra-state supply of certain services and Notification No. 1/2017- Central Tax (Rate) dated 28.06.2017 [i.e. Notification for CGST Rate on ‘Goods’] for intra-state supply of certain goods.

The aforesaid exemption for renting a residential dwelling for personal use, was given in Sr. No. 12 in the Service Exemption Notification as under-

But it is also pertinent to note that by perusal of the aforesaid exemption, it is clear that if residential property was 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 @ 18% on FCM Basis.

Later on, the GST Council in its 47th meeting had recommended the withdrawal of the given exemption when these services are provided to a registered person i.e. GST would be applicable when a residential dwelling is rented to a registered person. Simultaneously, Notification of Reverse Charge on Services has also been amended to provide that the service by way of renting a residential dwelling to a registered person would be subject to GST under reverse charge. Thus, the registered person receiving the above service would be liable to pay GST under RCM basis. To implement the decisions of GST council as above, two following notifications were issued-

1. Notification No. 04/2022-Central Tax (Rate) dated 13th July, 2022 [To amend Service Exemption Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017];

2. Notification No. 05/2022-Central Tax (Rate) dated 13th July, 2022 [To amend Reverse Charge Notification No. 13/2017-Central Tax (Rate) dated 28^th June, 2017]

It is also pertinent to mention that the aforesaid two notifications were issued on 13th July, 2022, but, these were applicable and effective from 18th July, 2022. On above amendment, with effect from 18^th July, 2022 the GST on renting a residential dwelling to a registered person would be subject to GST under Reverse Charge.

It is to be noted that by the aforesaid Notification No. 04/2022-Central Tax (Rate) dated 13th July, 2022, the exemption for renting a residential dwelling for personal use given in Sl. No. 12 of Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 was restricted. By the Notification No. 04/2022-CT (Rate) dated 13th July, 2022, the following amendment was made in Original Service Exemption 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;”

Accordingly, with the aforesaid amendment, exemption for renting a residential dwelling for personal use given in Sl. No. 12 of Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 may be read as under-

Simply, if any residential property is given to a registered person, then GST shall be payable. If any 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 Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 shall remain continue.

Amendment dated 13th July, 2022 [Effective from 18th July, 2022] in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017. i.e. Applicability of GST on rent under RCM first time.

As mentioned above, Notification of Reverse Charge on Services was also amended to provide that the service by way of renting a residential dwelling to a registered person would be subject to GST under reverse charge. In this regard, it is mentioned that the Government had amended the Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017 by way of issuing a new Notification No. 05/2022-CT (Rate) dated 13th July, 2022. As per this new Notification, a new service has been added as Serial No. 5AA in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017 “service by way of renting of residential dwelling to a registered person”.

The relevant amendment in the new Notification No. 05/2022-CT (Rate) dated 13th July, 2022, is as under: –

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

It is to be noted that before this Notification No. 05/2022-CT (Rate) dated 13th July, 2022, if any 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 issuing the Notification No. 05/2022-CT (Rate) dated 13th July, 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. It is also pertinent to mention that Notification No. 05/2022-CT (Rate) dated 13th July, 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.

Now, with the analysis of both amended Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017, it may be understood as under-

With the aforesaid amendments, the exemption for renting a residential dwelling for personal use was not 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. But, the same 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 W.P. (C) No. 10986/2022 in the matter of Seema Gupta v. Union of India, (judgment dated 27.09.2022) 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-Central Tax (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.

Now, in order to remove any ambiguity in availing the exemption benefit, the GST Council in their 48^th 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.

Amendment dated 30^th December, 2022 [Effective from 1^st January, 2023] in Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017.

Later on, the CBIC had issued Notification No. 15/2022-Central Tax (Rate) dated 30^th December, 2022 effective from 1^st January, 2023 in line with judgment of the Delhi High Court. As per the said Notification No. 15/2022-CT (Rate) dated 30.12.2022 the exemption for renting a residential dwelling for personal use given by Sl. No. 12 of Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 has been elaborated by inserting a new Explanation. By this Notification No. 15/2022-CT (Rate) dated 30.12.2022, the following amendment has been made in Original Service Exemption 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.”

Amendment dated 8^th October, 2024 [Effective from 10^th October, 2024] in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017

The Government has further amended the Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017 by way of issuing a new Notification No. 09/2024-CT (Rate) dated 08.10.2024 [Applicable w.e.f. 10.10.2024]. As per this new Notification, a new service has been added as Serial 5AB in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017.

The relevant amendment in the new Notification No. 09/2024-CT (Rate) dated 08.10.2024, is as under: –

“(1) In the said notification, in the Table, after serial number 5AA and the entries relating thereto, the following serial number and entries relating thereto in columns (2), (3) and (4) shall be inserted, namely: –

It is pertinent to note that the recommendations were made in GST Council during 54^th meeting and this notification brings under the RCM the renting of commercial property when an ‘unregistered person’ provides the service to a ‘registered person’, effective from October 10, 2024.

Now, with the analysis of both amended Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017, it may be understood as under-

GST on renting of Residential Dwelling

Exemption was granted by the explanation inserted in sr. no. 12 in Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 where the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence. Notably, GST would be payable under RCM basis where rental expenses are accounted for in the books of accounts of the registered person even though rented in his personal capacity.

GST on renting of other than Residential Dwelling

i.e. ‘Commercial Property’

Amendment dated 16^th January, 2025 [Effective from 16^th January, 2025] in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017.

The Government has further amended the Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017 by way of issuing a new Notification No. 07/2025-CT (Rate) dated 16.01.2025.

The relevant amendment in the new Notification No. 07/2025-CT (Rate) dated 16.01.2025, is as under: –

“(B) against serial number 5AB, in column (4), after the words “Any registered person”, the words “other than a person who has opted to pay tax under composition levy” shall be inserted.”

Accordingly, amended entry 5AB in Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017 may be read as under

It is pertinent to note that the recommendations were made in GST Council during 55th meeting and this notification brings that

• where any commercial property is let out by unregistered person to a registered person under normal scheme, then rent will be taxed on RCM basis;
• where any commercial property is let out by unregistered person to a registered person under composition scheme, then it will be exempt.

Now as on date, with the analysis of both amended Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and Original Reverse Charge on Services Notification No. 13/2017-CT (Rate) dated 28.06.2017, it may be understood as under-

GST on renting of Residential Dwelling

Exemption was granted by the explanation inserted in sr. no. 12 in Original Service Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 where the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence. Notably, GST would be payable under RCM basis where rental expenses are accounted for in the books of accounts of the registered person even though rented in his personal capacity.

GST on renting of other than Residential Dwelling

i.e. ‘Commercial Property’

RESIDENTIAL DWELLING

The term ‘residential dwelling’ has not been defined in GST law. It is well settled rule of Statutory Interpretation of fiscal statues that the words used therein if not defined in the statute have to be interpreted in their popular sense. In the matter Taghar Vasudeva Ambrish vs Appellate Authority For Advance Ruling, Karnataka in W.P. No. 14891 of 2020 (Judgment dated 7th February, 2022), the Hon’ble High Court of Karnataka held that the service provided by the petitioner i.e., leasing out residential premises as hostel to students and working professionals is covered under Entry 13 of Notification No.9/2017 dated 28.09.2017 (IGST Notification) namely ‘Services by way of renting of residential dwelling for use as residence’ issued under the Act. The petitioner is held entitled to benefit of exemption notification. The Hon’ble High Court held that

“15. The twin questions which need to be answered in order to ascertain whether the service provided by the petitioner is covered under exemption notification are: (i) What is being rented? (ii) The purpose for which the residence is used for. Firstly, the residential dwelling is being rented, as the hostel to the students and working women fall within the purview of residential dwelling as the same is used by the students as well as the working women for the purposes of residence. Secondly, the residential dwelling is being used for the purposes of residence. Thus, the aforesaid questions are required to answered in favour of the petitioner. It is also worth mentioning that the notification does not require the lessee itself use the premises as residence. Therefore, the benefit of exemption notification cannot be denied to the petitioner on the ground that the lessee is not using the premises. Similarly, the finding recorded by AAAR Karnataka that the hostel accommodation is more akin to ‘sociable accommodation’ is unintelligible and is not relevant for the purposes of determining the eligibility of the petitioner to claim the benefit under the exemption notification.”

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