Renting of Residential Dwelling - Impact of Tweaking the Exemptions on Industry

[Chitresh Gupta]

Shelter is a basic human need crucial for survival. It provides security, personal safety and protection from the weather, and prevents ill health and disease. Adequate housing provides people with dignity and the opportunity to lead a normal life.

To provide the shelter to everyone and to provide the residential dwelling at a low cost, Government had exempted the services by way of renting of residential dwelling for use as residence.

As per S. No. 12 of Notification No. 12/2017-Central Tax (Rate) / S. No. 13 of Notification No. 9/2017-Integrated Tax (Rate), services by way of renting of residential dwelling for use as residence were exempted from GST.

However, the CBIC, in line with the recommendations made by the GST Council in its 47^th Meeting held on 28-06-2022 to  29.06.2022, has curtailed the exemption and made the following services taxable under reverse charge by way of Notification No. 04/2022-CT(R) dated 13-07-2022  read with Notification No. 05/2022-CT(R) dated 13-07-2022:

Notification No. 12/2017-CT(Rate) as amended vide Notification No. 04/2022-CT(Rate)
S. No	Heading	Description of Services	Rate	Condition
12	Heading 9963 or Heading 9972	Services by way of renting of residential dwelling for use as residence “except where the residential dwelling is rented to a registered person”.	Nil	Nil

 

Notification No. 13/2017-CT(Rate) as amended vide Notification No. 05/2022-CT(Rate)
S. No.	Category of Supply of Services	Supplier of service	Recipient of Service
5AA	Service by way of renting of residential dwelling to a registered person	Any person	Any registered person @ 18% (SAC 997211)

Now, we shall analyze the implication on the taxability of such services after withdrawal of exemption on the above services.

Important Definitions

Residential Dwelling

The phrase ‘residential dwelling’ has not been defined in the Act. As per ‘Taxation of Services – Education Guide dated 20-06-2012 issued by CBEC (now CBIC) under earlier service tax regime at serial no. 4.13.1 has clarified the meaning of term ‘residential dwelling’ as follow:

4.13.1 What is a ‘residential dwelling’?

The phrase ‘residential dwelling’ has not been defined in the Act (service tax law). It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay.

Thus, on the basis of above definition it can be inferred that the term residential dwelling shall not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places as these places are meant for the temporary stay only.

Impact of the Amendment on Residential Accommodation Services

Nature of Residential Accommodation	Taxability before change	Taxability after change
Let out for residential use	Completely Exempt	In case let out to Registered person - Taxable under Reverse Charge In other cases - Exempt
Let out for any non-residential use	Taxable @ 18%	In case let out to Registered person - Taxable under Reverse Charge In other cases - Taxable under forward charge @ 18%
Let out to unregistered person	Completely Exempt	Since, No GST since unregistered - Exempt
Let out to the company (registered) who gives it to the employee	Completely Exempt	Taxable in hands of the Company under Reverse Charge. Tax shall not be levied in the hands of the Company under forward charge on providing such residential accommodation to its employees, in terms of the contractual agreement with its employees, as per Entry 1 of Schedule III to CGST Act, 2017.
Company owned Staff Quarters provided to employees at concessional rent near factory premises to employees	Completely Exempt	Completely Exempt
Let out to proprietor of GST registered concern for personal use as residence	Completely Exempt	GST liable to be paid under RCM
Let out as Hotel/ Guest house	Comes within the scope of Hotel Accommodation Services

Discussions to this article

[PAWANKUMAR SONI]

You have mentioned in Table sr. no. 2 as "Let out for any non-residential use", and its being taxable under RCM if given to Registered Person. What do you mean by Non-residential use. Since even if the residential property is given for commercial, it is taxable under Forward charge Basis. Kindly please elaborate more on your understanding.

[Chitresh Gupta]

In our article we have tried to cover various scenarios for letting out of residential property. We will try to explain the concern raised by yourself.

It can be noted here that two changes have been made separately vide two notifications i.e. 1st change has been made in exemption notification and second change has been made RCM notification.

The provisions you are referring to pertains to the exemption notification which has been made vide Notification No. 4/2022 -CT(R) dated 13-07-2022. You will appreciate that the earlier exemption and even the amended exemption limits its scope to letting out of residential property for use as residence. The scenario for letting out the same for non-residential purpose was taxable in earlier regime also.

Furthermore, in case of RCM, the change is made by notification no. No. 5/2022 -CT(R) dated 13-07-2022 vide which following services has been brought under reverse charge;

1)	(2)	(3)	(4)
“5AA	Service by way of renting of residential dwelling to a registered person.	Any person	Any registered person.”;

Now, in the above entry, the words ‘used as residence’ has not been used. Meaning thereby, use by the tenant who is a registered person is irrelevant for the purpose of RCM. Residential property can be used for residential as well as commercial. That’s why, in my view,

Let out for any non residential Use: Taxable @ 18% • In case let out to Registered person -Taxable under Reverse Charge • In other cases - Taxable under forward charge @ 18%

Hope it clarifies the matter. If you have different view, kindly do share do that I can also analysis the same once again.

[PAWANKUMAR SONI]

Dear Chitreshji,
Thank you for your reply. I understood the thin point you have made about "used as a residence" is now removed, so now if residential dwell used for commercial purposes, then the same will be covered in RCM, rather than FCB

[VASANTH KUMAR]

Dear sir,

It is very much clear that department while inserting entry 5AA in RCM notification has created a confusion as to whether RCM is applicable when residential dwelling used for residential purpose or commercial purpose.

However, if we read 47th GST Council Recommendations, it was recommended only for renting of residential dwelling for use as residence to the registered persion (which was removed from exemption).

Once it is removed from exemption obviously it should be taxable, which they brought it under RCM.

Moreover in 47th GST Council Recommendations there was no discussion on the point i.e., shifting of taxable point from FC to RCM. when there was no such recommendation from GST Council being constitutional body created under Article 279-A, whether notification is valid or not?

[MANU SINGHAL]

Sir, in case of residential accommodations let out to company (registered) who gives it to employees is shown completely exempted. Stating that Entry1 of Schedule 3 of CGST Act 2017, which talks about services provided by employee to employer......

In this context, the following need clarification:

1. Let out residential accommodation to company (registered) who gives to employees is liable to GST under RCM and thereafter upon accommodating it to its employees "no further GST under Forward Charge from employee"

2. Let out residential accommodation to company (registered) who gives to employees is liable to GST under RCM and thereafter upon accommodating it to its employees "no further GST under Forward Charge from employee", if this residential accommodation is a sole property (like transit Guest house) and accommodating to employees on sharing of rooms basis by charge in a token money.

3. How it will impact if instead of let out or residential property, a company build a guest house / residential unit for accommodating to its employees on temporary basis like on tour etc. by chargin token rent amount.