AAR: No GST Registration for Co-Owners with Annual Turnover Less Than 20 Lakh
In the instant case, the petitioner is the co-owners of a jointly owned immovable property. There are 13 co-owners holding equal share in 86.78 Cents of land and building. They have rented out these properties to different parties. Total rents from all these properties exceed twenty lakh rupees in a financial year. But, individual share is not exceeding the said threshold. Now, the owners are planning to engage one of the co-owners to collect rent and distribute among them for the purpose of administrative convenience through execution of a power of attorney. In the circumstances, an advance ruling is sought in respect of the following:
- Whether small business exemption under Section 22 of the GST Act is available to all owners separately in case of jointly owned property.
- Engaging a co-owner to collect and distribute rent among all the owners for administrative convenience will have any implication on the business exemption under Section 22 of the GST Act for individual co-owners.
Authorised Representative of petitioner stated that—
- Renting of immovable property is considered the supply of service under GST. 18% GST is levied on these services under the GST Act.
- Section 22 of the GST exempts a supplier from GST registration if aggregate annual turnover is less than Rs. 20 Lakh.
The AAR on hearing the appeal noted that the collected rent was equally distributed among all co-owners. The net income of each supplier was less than Rs.20 Lakh. The co-owner collected rent from his own tenants as well as those of the other co-owners. The rent was later distributed by the co-owner to every other co-owner of the property. The fact that rent was collected by only one co-owner and later distributed to all is an administrative decision. All transaction are clear and ascertainable.
The AAR believes that the as the co-owners individual rent does not cross the threshold limits, the section 22 of the Central Goods and Services Tax (CGST) Act is applicable. Rent is no doubt collected together but is later fairly distributed in proportion with individuals share in the property. The proportionate sharing makes it eligible for threshold exemption benefit.
Key Highlights of the AAR Ruling
- Co-ownership of the property is for administrative, financial, and family reasons.
- Properties are jointly held and rented out as per individual ownership shares.
- Rent is accrued collectively and later divided as per ownership ratio.
- Each fraction of the distributed rent is deposited to the respective co-owner’s bank account.
- Co-owner whose annual receipts do not exceed Rs.20 Lakh is exempt from GST Registration. Even if the collective share exceeds Rs.20 Lakh.
The AAR Ruling says, “By mere joining of hands of two or more persons, a different and distinct legal entity or legal personality does not come into existence unless there is an intention to do so. It is settled law under Section 26 of the IT Act that where the property, consisting of buildings and land appurtenant, is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each such person in the income from the property is included in his total income”.
In view of the observations stated above, the following rulings are issued:
i) Small business exemption, provided under Section 22 of the GST Act, is eligible to the co-owners separately in the case of jointly owned property, where the rent is collected together, but divided equally and transferred to the respective co-owner.
ii) Engaging a co-owner to collect and distribute rent among all the owners for administrative convenience has no implication on the business exemption under Section 22 of the GST Act for individual co-owners.