As per Notification No. 05/2022- Central Tax (Rate) Dated: 13th July, 2022 issued by GST council which has came into effect from 18th July, 2022, the transaction of renting of residential or commercial dwelling will be taxable as follows:
For better understanding we taken following below examples:
Transaction 1:
There are two parties, Mr. A and ABC Co.
- A. having residential property, and he is not registered under GST.
- Let out residential property to ABC Co. for commercial use. (ABC Co. is registered under GST)
- Here ABC Co. will pay RCM* on the amount of payment of Rent made by it to Mr. A and avail the ITC for the same.
Transaction 2:
There are two parties, Mr. A and ABC Co.
- A. having residential property, is registered under GST .
- Let out residential property to ABC Co. for commercial use. (ABC Co. is registered under GST)
- Here Mr. A will raise invoice and charge GST on it and hence here forward charge mechanism (FCM) will apply. RCM will not come as Mr. A is registered under GST.
Transaction 3:
There are two parties, Mr. A and ABC Co.
- A. having commercial property, and he his not registered under GST .
- Let out commercial property to ABC Co. for commercial use. (ABC Co. is registered under GST)
- Here the said transaction is not cover under RCM, hence no RCM and FCM** will arise.
Transaction 4:
There are two parties, Mr. A and ABC Co.
- A. having commercial property, and is registered under GST .
- Let out commercial property to ABC Co. for purpose of business. (ABC Co. is registered under GST)
- Here Mr. A will raise invoice and charge GST on it and hence here forward charge mechanism (FCM) will apply.
- RCM will not come as Mr. A is registered under GST.
48th Meeting of the GST Council 17th December, 2022:
Clarification for residential dwelling is rented to a registered person:
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.
Transaction 5:
There are two parties, Mr. A and Mr. B
- A. having residential property. (Mr. A registered under GST)
- Let out residential property to Mr. B for purpose of residential use. (Mr. B registered under GST)
- Residential dwelling let out for residential purpose, hence no FCM and RCM will arise, as the said transaction is exempt from GST.
From the above transactions as example it is conclude that:
- Renting of residential dwelling for residential purpose exempt from GST even if both the persons are registered under GST. (Transaction 5)
- Renting of residential dwelling for commercial purpose will attract RCM. (Transaction 1)
- Renting of residential dwelling for commercial purpose and if supplier is registered, FCM will applicable. (Transaction 2)
- Renting of commercial dwelling for commercial purpose, supplier not registered under GST, RCM is not applicable as transaction is not covered. (Transaction 3)
- Renting of commercial dwelling for commercial purpose, supplier is registered under GST, FCM will be applicable. (Transaction 4)
*RCM= Reverse Charge Mechanism
** FCM= Forward Charge Mechanism
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For Transaction 2, i believe RCM will be applicable. Refer Notification 5/22 CTR wherein word used in column 3 is “Any Person” which means registered or not-registered.
If residential property let out to a registered party but used by his employee as stay. is RCM applicable ?
A company or firm (registered under GST) takes a residential dwelling on rent for the purposes of residence of employees, it will be liable to pay GST @ 18% under RCM and eligible to claim ITC of the tax so paid by it.
“Renting of residential dwelling for residential purpose exempt from GST even if both the persons are registered under GST. (Transaction 5)”. I think there is some mistake because amend says “Service by way of renting of residential dwelling to a registered person.” and no where it is said for commercial use or residential. That means ever service receiver is a GST registered and service giver is not registered, than even if it is used for residential purpose or guest house, it will attracts RCM. Also if is for residential purchase of director or partner or proprietor than one may not get ITC of it on account or personal use.
The rule for RCM applicability, is on residential property used for commercial purpose. Residential property used for residential purpose is already exempt from GST (No matter whether supplier or recipient is registered or not)
If Residential property given on rent by registered person to another registered person RCM will be applicable except proprietor of firm who takes in personal capacity. if a company has taken residential property on rent , company has to pay GST under RCM irrespective of supplier registered or URD
Yes, as the said property is a residential property company has to pay RCM irrespectively, as company will use it for commercial purpose only.
What will be the scenario if the property is owned by a Non Resident and given out for commercial use. Will notification 10/2017 override mandatory registration in case of NR on taxable supply as per S 24
Definition NRTP:
Non-resident taxable person” means any person who occasionally undertakes transactions involving the supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.
As per sec. 24 if NRTP is not residing in India, and has no fixed place of business and occasional carries business than registration is compulsory and tax is to be paid on forward charge basis, even in case of commercial use of residential property and registration has to obtain by NRTP.
But if Non resident has fixed place of business and carries business regularly than RCM is applicable on the said transaction.
Well explained !!
Thank you