GST on Renting of Immovable Property

Introduction

Renting of immovable property has always been a complex issue under the GST as there exists multiplicity of exemptions and complicated Place of supply rules governing the levy of GST on such transactions. Further, with effect from 18th July 2000 and 2022 renting transactions have become even more complex on account of introduction of Reverse charge mechanism on select renting transactions and on account of withdrawal of well settled exemptions that were previously applicable to renting of property.

Introduction of Reverse charge Mechanism to Renting Transactions-

The applicable RCM entry is reproduced as under-

(Inserted by Noti. No. 05/2022-CT Rate dated 13.07.2022 w.e.f. 18.07.2022)

With introduction of Reverse charge the earlier entry 12 for exemption provided to renting of residential dwelling was also modified and the modified entry is as under-

“Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a Registered person.

Explanation.—For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a Registered person where,—

(i) the Registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and

(ii) such renting is on his own account and not that of the proprietorship concern.”

So now on combined reading of Reverse charge transaction and modified exemption entry the new scenario comes out as under-

Commercial property:

a) If the landlord has GST Registration, there will be 18% GST under the forward charge basis.

b) If the landlord does not have GST Registration, then there is no GST on commercial property.

c) Whether the tenant has GST Registration or not – Does not matter.

Residential Property:

a) The landlord has GST registration or not – Does not matter.

b) If the tenant has GST Registration, no GST when renting is for personal use.

c) 18% GST on renting of the residential unit if the renting is to business entity.

Place of Supply and treatment of Supply as Inter-State or Intra-State-

The provisions of section 12(3) of the IGST Act, 2107 is reproduced as under for ready reference-

“(3) The Place of supply of services,-

(a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or

(b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or

(c) by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or

(d) any services ancillary to the services referred to in clauses (a), (b) and (c),

shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:

Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the Place of supply shall be the location of the recipient.”

It is crystal clear from the reading of above that the Place of supply in case of services related to or associated with immovable property shall be the location of the immovable property. Let’s again tabulate the different possible permutations and combinations to understand the issue better-

* In the 4th scenario since the C/SGST shall pertain to Delhi, recipient of rental service would not be eligible for claim of ITC.

Further supplier of interstate supply is mandatorily required to obtain registration under section 24 even if the threshold limit is not crossed. However interstate supplier of services have been exempted from obtaining mandatory registration up to the threshold limit. Notification no 10/2017 IGST dated 13.10.2017 exempts supplier of taxable inter state services where Aggregate turnover on all India basis does not exceed Rs 20 Lakhs. So where a supplier supplies inter state services and his Aggregate turnover under his pan on all India basis is below Rs. 20 Lakhs he is exempted from mandatory GST registration.