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Introduction: –

Renting of an immovable property is considered a supply of service under GST as per schedule II of the CGST Act 2017. Till 17th July 2017, renting of residential dwelling for use as residence was exempted whereas services by way of renting for commercial use (SAC Code –997212) was taxable @ 18%. However, the dynamics of renting of residential property under GST has changed from 18th of July 2022. The decision to bring the renting of residential dwellings under the tax net was taken in the 47th GST Council Meeting held on 28th to 29th June 2022 by partially removing the exemption and including the same under RCM services when provided to a registered person. It may be noted in this regard that the renting of a property for commercial use is taxable.

Also Read: Residential Dwelling Under GST – Unanswered Questions

Existing status of Rental services under GST (Till 17th July 2022): –

In this respect, let us first understand the tax structure existing till 17th of July, 2022.

“Services by way of renting of residential dwelling for use as residence was exempted as per Notification No. 12/2017- Central Tax (Rate), dated the 28th June, 2017.”

It must be noted that the instant exemption was provided to all taxpayers irrespective of their registration under GST i.e. exemption was available to all persons whether or not they are registered under GST.

Recent Development (Applicable from 18th July 2022):

1. Exemption restricted: The CBIC vide notification No. 04/2022-Central Tax (Rate) dated the 13th July, 2022, restricted the instant exemption to unregistered recipient only. The relevant extract of instant notification has been reproduced hereunder:

Sl. No Chapter, Section, Heading, Group or Service Code (Tariff Description of Services Rate (per cent.) Condition
12 Heading 9963 or Heading 9972 Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person Nil Nil

Implication of instant restriction: –

> From 18th July 2022, Services by way of renting of residential dwelling for use as residence would be exempted only if the said service is provided to Unregistered recipient.

> Further, it should be noted that exemption is available only when it is used for residential purpose i.e. if residential dwelling is used for other than residential use, the same shall be taxable.

2. Inclusion in list of services under RCM: The CBIC vide notification No. 05/2022-Central Tax (Rate) dated the 13th July, 2022 notified that with effect from 18th July 2022, service by way of renting of residential dwelling to a registered person will be attracting reverse charge. The relevant extract of instant notification has been reproduced here under:

Entry No Category of supply of service Supplier of Service Recipient of Service
5AA Service by way of renting of residential dwelling to a registered person. Any person Any registered person

Implication of the instant insertion under RCM:

> GST will be applicable if the residential property is rented out to a registered person under GST w.e.f. 18th July 2022. Liability to pay GST @ 18% under the reverse charge mechanism will arise on the recipient (tenant).

> It may be noted that type of use of residential dwelling i.e. for residence or otherwise by the recipient has not been mentioned in the RCM notification. Hence, service of renting of residential dwelling to a registered person would attract RCM irrespective of nature of use.

> GST exemption shall continue if residential property for residential use is rented out to an unregistered person under GST w.e.f. 18th July 2022.

Author’s Comments: –

Apropos the above amendments, relevance must be given to the term “use as residence”, as it forms a part of exemptions notification but not included in the changes made in the list of services under RCM. The same can be well highlighted in the summary tabulated below:

SN Property Used for Recipient Earlier Now
1 Residential Residence Unregistered Exempt Exempt
2 Registered Exempt Taxable under Reverse Charge
3 Residential Commercial Registered Taxable under Forward Charge Taxable under Reverse Charge
4 Unregistered Taxable under Forward Charge Taxable under Forward Charge
5 Commercial Commercial Any person Taxable under Forward Charge Taxable under Forward Charge

Therefore, it becomes quite important to identify the nature of use of the property taken on rent as the taxability under GST depends on that.

 

Author Bio

Founder of CA Firm in 2009 which has grown from strength to strength, serving more than 50 clients. All India 19th rank in CA finals. Worked for 3 years in D.B. Desai & associates. Headed indirect taxation at Berger paints for 3 years before coming into practice. View Full Profile

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