GST on Renting of Residential Dwelling before 18.07.2022
The GST on renting of commercial property was applicable @ 18% since the implementation of the GST Act, 2017. The GST rate on renting of residential property was Nil, hence it was an exempt supply vide entry no. 12 under heading no. 9963 or 9972 in the Notification No. 12/2017 dt. 23.06.2017.
GST on Renting of Residential Dwelling after 18.07.2022
The Govt. vide Notification No. 04/2022 dt. 13.07.2022 brought many amendments, including the amendments regarding the renting of the residential property in the earlier Notification No. 12/2017 dt. 23.06.2017. This amendment was effective from 18.07.2022. In the said notification no. 04/2022 Central Tax (Rates) dt. 13.07.2022, The Govt through the clause no. (b) has made the following amendments: -
“(b) against serial no. 12, in column no. (3), after the words “as residence” the words “except where the residential dwelling is rented to a registered person” shall be inserted.”
As per Section 2(94), a registered person is a person who is registered under Section 22 or under Section 25 of the CGST Act, 2017
It means before this amendment, GST rate on renting of residential property to every person was NIL but after this amendment, from 18.07.2022, the GST rate on renting of residential property to unregistered person still remains NIL but the exemption of NIL GST on renting of residential property for commercial purpose to registered person was withdrawn from 18.7.2022
GST to be paid by the Registered Person under RCM
The Govt. vide Notification No. 05/2022- Central Tax (Rate) dt. 13.07.2022, also amended the notification No. 13/2017- Central Tax (Rate) dt. 23.06.2017 by including the following entry no. 5AA under the Reverse Charge Mechanism.
Therefore, services by way of renting of residential dwelling to a registered person for commercial purpose, shall attract GST @ 18% and is to be paid under the Reverse Charge Mechanism i.e. RCM. Meaning thereby, the recipient of the services has to pay the GST under Reverse Charge Mechanism.
Who will be covered under the new rule
Small businesses & all professional like C.As, Doctors, Lawyers etc., who run their businesses or offices from residential areas will be covered under new rule.
The Cos. or Banks who provide rent free accommodations to their directors or employees & claim rental expenses will also be covered under the new rule.
The composition dealer will also be covered under the new rule if he uses the residential property for their business purposes. The Composition dealer, in such case, will not be eligible for input tax credit as per section 10(4) of the CGST Act, 2017
Who will not be covered under the new rule
Any registered person who takes the residential property for his/her personal use will not be liable to pay any GST on the rent paid by him/her in the personal capacity.
If the employees or director of any company or bank take the residential property for their own purpose & pay the rent from their own pocket will not be covered under this rule
Clarification from the Govt.
The Revenue, in matter argued on 27.09.2022, admitted that the impugned notification has failed to differentiate between premises taken on rent for personal use and taken on rent for business use and that further steps would be taken to suitable modify that exemption notification.
Finally The Government has clarified on this issue thought a tweet, which came into effect from 18th July. In a tweet, PIB said that “renting of residential unit taxable only when it is rented to business entity?.” It further clarified that “no GST when it is rented to private person for personal use; no GST even if proprietor or partner of firm rents residence for personal use.”
Author- Advocate Narender Ahuja
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