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Status of GST on service of renting of residential dwelling for use as residence w.e.f. 18-07-2022 – A brief analysis

Effective 18.07.2022, exemption under GST on the service of renting of residential dwelling for use as residence shall be restricted where the recipient of such service is not registered under GST.

Where the recipient of such service is registered under GST, the service shall be liable to GST @ 18%. However, the tax shall be paid by the recipient under reverse charge. The enclosed table summarises the position.

Implications for the recipient:

Businesses that have taken residential dwellings on rent for use as guesthouse or as residence of its personnel will be in a position to claim the ITC of the GST paid under reverse charge, this being a business expenditure and no blockage of ITC u/s 17(5) for the same (yet).

Registered individuals staying in rented houses must bear an additional 18% cost.

Implications for the supplier:

For the suppliers (lessors) who are already registered under GST, nothing changes. Provisions relating to apportionment of ITC u/s 17(2) also remain the same since outward supplies liable to tax under RCM are akin to exempt supplies for the said purpose.

Suppliers (lessors) who are not registered and were not otherwise required to get registered under GST should (ideally) continue to remain unregistered. But a close reading of Notification No. 5/2017-CT dated 19.06.2017 would reveal that only such persons who are only engaged in making supplies of taxable services, the total tax on which is liable to be paid on reverse charge basis by the recipient u/s 9(3) have been notified as the category of persons exempted from taking registration. Further, perusal of sec. 23 of the CGST Act would reveal that any person engaged exclusively in the business of supplying services that are wholly exempt from GST are not liable for registration.

Now, what about those unregistered suppliers who are owners of multiple residential dwellings and have rented out such residential dwellings to registered as well as unregistered persons / entities? Such persons are neither “only engaged” in making supplies of taxable services which are liable to tax under reverse charge nor are they exclusively engaged in the business of supplying services that are wholly exempt.

I see a new issue for clarification by CBIC.

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2 Comments

  1. Omkar says:

    Is gst applicable if a company gst registered takes residential property of unregistered person on rent and than the company rents out the same property for residential purpose to a unregistered person .

  2. NKG says:

    Businesses that have taken residential dwellings on rent for use as guesthouse or as residence of its personnel will be in a position to claim the ITC of the GST paid under reverse charge, this being a business expenditure

    Sir, how it will be considered as business expenditure in case of a proprietor (registered dealer ) has taken residential house for his personal use.

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