By Tanushree Roy
From July 18, 2022, GST at 18% has been made applicable on lease rent paid for rental of residential dwellings to registered persons under GST. The change came on the back of recommendations of the 47th GST Council Meeting held on June 29, 2022. In order to understand what changes for the common man on account of the amendment, it is essential to understand the levy of GST on renting of residential dwellings.
Position prior to July 18, 2022
In terms of the GST legislation, every supply is generally taxable unless notified as ‘exempt’. ‘Services by way of renting of residential dwelling for use as residence’ were exempt since the introduction of the GST regime. Such services were exempt in the pre-GST era as well. Here, the keyword is ‘residential dwelling for use as residence’. Accordingly, service of renting of commercial dwellings or renting of residential dwellings for commercial use were taxable even prior to July 18, 2022 as well.
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Current position
In order to implement recommendations of the GST council, Central Board of Indirect Taxes and Customs made two changes in the GST legislation in respect of this transaction. One, it restricted the earlier exemption to unregistered recipient only. Second, it introduced Reverse Charge Mechanism (RCM) on registered recipient. RCM is a special case under GST where the recipient has to directly deposit the tax to the government instead of paying it to the supplier.
Accordingly, GST payment on renting of residential dwelling for residential use is dependent upon the status of recipient/ tenant of such residential dwelling. If recipient/ tenant is registered, he has to pay GST under RCM, from July 18, 2022 onwards, else GST is exempt. This would be applicable only if the property is used for residential purposes. Recipient can claim input tax credit (ITC) of GST paid under RCM, subject to certain conditions.
Impact on industry
This will impact businesses/ companies which provide guest houses, rent-free accommodation, etc., to their employees. Such businesses are now required to discharge GST on the said services, however, they would generally be able to claim input tax credit of taxes so paid, subject to prescribed conditions.
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It is yet to be seen whether ITC on such renting could also be denied citing it as ‘used for personal consumption of employees’. The uncertainty in ITC availability and upfront payment of GST under RCM may lead to changes in such perquisites to employees. Hence, analysis of rental agreements for residential dwellings may be required from a legal standpoint to avoid potential litigations.
The writer is director, Indirect Tax, Nangia Andersen India. Inputs from Dushyant Minocha, manager.
