GST on Renting of residential dwelling “for use as residence” and “not use of residence”

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GST on Renting of residential dwelling “for use as residence” and “not use of residence”

Residential dwelling rented for use as residence may be used for purposes other than residence & it is different from the purpose of residence under the GST law.

Residential dwelling “rented for use other than residence” was never exempt and continues to be taxable. Hence it not the actual use but the terms of agreement that might decide taxability of residential dwelling. Till the date of the present notification dated 17-07-2022, it does not make distinction whether residential dwelling is rented to registered person or unregistered person.

However vide “NOTIFICATE NUMBER 4/2022 dated 13-07-2022”, where residential dwelling for use as residence is rented to a registered person, exemption from GST shall not be available and GST shall be applicable in all such cases.

Further vide “NOTIFICATE NUMBER 5/2022 dated 13-07-2022”, RCM provisions have been imposed on registered person who is recipient of the service of renting of residential dwelling.”

RCM shall be applicable on renting of residential dwelling to registered person irrespective of the fact that residential dwelling is for use as residence or otherwise”

In the present scenario the flowing instances may be there:

  1. a) Renting of Residential dwelling rented “for use as residence rented to unregistered person” is exempt

b) Renting of residential dwelling rented “for use as residence rented to registered person” is taxable under reverse charge.

c) Renting of residential dwelling rented “not for use as residence rented to unregistered person” is taxable under forward charge.

d) Renting of residential dwelling rented “not for use as residence to registered person” is taxable under reverse charge. [Notification 5/2022 provides that the Renting of residential property by any person to registered person is subject to reverse charge . It states “any person”. It no where distinguishes between the purpose of use. As a result, it appears that RCM will be applicable whenever residential property is rented to registered person irrespective of the ultimate use].

e) Renting of Commercial property irrespective of use and irrespective of tenant being registered or unregistered person is taxable under forward charge.

Applicability in case of Registered person:
RCM has been imposed on registered person. Where a person is individual or HUF and has been rented residential dwelling for use as residence and rent agreement has not been entered for business purposes of registered person, and rent is also not claimed as business expenditure, then though such person has PAN based GSTIN, he can not be treated as registered person for transaction entered in personal capacity, “because registration is granted for place of business”

However if such individual or HUF has been rented residential dwelling not for use as residence, e.g. for use of employees or for use due to registered person is away from his permanent place of residence, then it might be prudent to enter the agreement in trade name instead of individual name, claim the expenditure in profit and loss account and accordingly pay tax under RCM and avail ITC.
If Company or firm has been rented residential dwelling for use of business, both taxability and RCM shall be invited inspite Director using the residential dwelling as residence.

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