Introduction: This article discusses in details the taxability of renting of immovable property under GST.
Under GST, “renting of immovable property” is included in schedule II of CGST Act which defines it as the supply of services on which the GST rate is 18%.
However Entry no. 12 of exemption Notification no. 12/2017 dated 28.06.2017 exempts the services by way of renting of residential dwelling for use as a residence, meaning thereby that if the residential dwelling is leased out for commercial purposes then no exemption will apply and the rental from such residential property being leased out for commercial activity shall be taxable to GST.
So, “Services by way of renting of residential dwelling for use as residence” is exempted from the tax net.
However, it does not exempt renting of immovable property for commercial use.
Accordingly, the same is taxable at 18% GST.
Also, No GST is payable on Services by a person by way of renting of precincts of a religious place meant for general public. So the rate of GST payable on Services by a person by way of renting of precincts of a religious place meant for general public is nil rate.
However, the exemption shall not be applicable to renting of rooms where charges are Rs 1000/- or more per day, renting of premises, community halls, kalyanmandapam or open area, etc where charges are Rs. 10,000/- or more per day, and renting of shops or other spaces for business or commerce where charges are Rs 10,000/-or more per month.
Whether supply of renting of immovable property service is Interstate or Intrastate ?
A very difficult question to answer!!!!!!!!!!!
Let us try to find out the answer.
In old era, Service tax was a Central Tax there was no State Tax on services.
But in GST era, the need to bifurcate the supply of services into interstate supply and intrastate supply has arisen such that the portion of state tax can go to the State of consumption of services.
For this purpose, we to need to evaluate 2 coordinates i.e. ‘Place of Supply of Services’ [refer to section 12 of IGST Act] and second is the location of supplier of services’ [refer to section 2(15) of IGST Act]
If these two coordinates fall in two different States, then it is an interstate supply, and
if both of these two coordinates fall in the same state then it is an intra-state (local) supply.
Now going by the above parameters let us evaluate what will happen to a case of rental from immovable property?
Suppose, a landowner who is located in Gurgaon and owns an immovable commercial property in Bangalore which he has rented out there at Rs. 1,00,000/-.
The question is whether the land owner will have to take GST registration in the State of Karnataka which is undisputedly the place of supply? Or, instead
Whether the land owner can take GST registration in the State of Haryana which is his usual place of residence and treat it as interstate supply and accordingly charge IGST?
For that, let us examine the above two co-ordinates.
A. Place of Supply
As per section 12(3) of IGST Act, the place of supply of service in relation to an immovable property shall be the location at which the immovable property is located.
Therefore, in this case, the place of supply is undisputedly Bangalore because the property is located thereat.
B. Location of supplier
For this the reference is invited to section 2(15) of IGST Act.
Section 2(15) contains four clauses (a),(b),(c),(d) to determine the location of the supplier of service.
Clause (a) says that location of a supplier means a place of business wherefrom the supply is made.
To fulfil this test, it is important to check whether the land owner is having any place of business in Bangalore just by having an immovable property thereat.
For the meaning of ‘place of business’ reference is invited to section 2(85) of CGST Act, which defines a ‘place of business’ wherefrom a business is ordinarily carried on and/or where a warehouse or go down or any other place for storage of goods is located and/or books of accounts are maintained and/or the business through agent is carried on.
Just having an immovable property doesn’t qualify this test as per section 2(85) of CGST Act, so in our example there is no ‘place of business’ of the landlord in Bangalore.
Now let us examine clause (b) of Sec 2(15) of IGST Act, whether the land lord is having fixed establishment in Bangalore and for that reference is directed to section 2(50) of CGST Act, wherein a fixed establishment is a place which is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources.
This test of having human and technical resources is also not qualified by just having immovable property at Bangalore.
So Clause (b) has no application in our case.
Now let us examine Clause (c) of Sec 2(15) of IGST Act. It pertains to a supply of service from more than one establishment and thus has no application in our case.
Now comes the final test i.e. residual clause (d) which says that:_
in the absence of clause (a),(b),(c) being applicable, the location of usual place of residence shall be the location of the supplier of services within the meaning of clause (d) of sec 2(15) of IGST Act.
Therefore in our example
1. the location of the landlord will be Gurgaon, while
2. the place of supply will be Bangalore ,and
3. hence as per section 7 of IGST Act this will be an interstate supply subject to IGST, and
4. So, there is no need for the landlord to take GST registration in the State of Karnataka.
The author is a practising CA and is registered Insolvency Professional. He can be reached at firstname.lastname@example.org, Mob. +91 9953587496.