GST on RENT Immovable Properties Part II

[K Balasubramanian]

1. Further to the article published on 20/02/2025, it is proposed to cover related issues on this topic in this second and concluding part. Exemption from GST on hostel accommodation, GST on long term lease of land as well as applicability of GST in cases where no rent is collected, when huge interest free advances are taken from the tenant are being covered.

2. With effect from 15/07/2024, vide notification number 04/2024 CT Rate dated 12/07/2024, a new entry 12A was added to the exemption notification 12/2017 CT Rate dated 28/06/2017 which provides for exemption from GST on supply of accommodation service having value of supply less than or equal to twenty thousand rupees per person per month provided that the accommodation service is supplied for a minimum continuous period of ninety days. This is a new exemption applicable from 15/07/2024. However, CBIC Circular 228/22/2024 dated 15/07/2024 clarifies that the period from 01/07/2017 to 14/07/2024 would be regularized on as is where is basis provided other conditions as stipulated in 04/2024 such as continuous supply of  ninety days and less than or equal to  twenty thousand per person per month are satisfied. Though it may look as a welcome step, the regularization on as is where is basis makes genuine taxpayer suffer whereas non tax payer, irrespective of whether there was an intention to avoid tax or not, is saved.

3. Law is being amended several times with retrospective effect, whenever there is an impact on Revenue, the best example being the recent one proposed to amend Section 17 (5)(d). While this is a retrograde approach as the genuine tax payer looses his entitlement, which he legally got based on the law stood during the relevant period of time, whenever any beneficial clarification or exemption from GST is granted, it is mostly on prospective basis. The Government, with good intention regularizes the past cases on as is where is basis to facilitate the tax payer for the past period like the one covered in para 02 above in a few cases. However, those who have already paid the applicable GST or foregone the ITC based on law stood before such amendment stand to loose as the regularization is on as is where is basis.

4. Long Term Lease: Serial number 41 of the exemption notification 12/2017 provides for GST exemption on long term lease of 30 years or more for industrial plots provided the lease amount (by whatever name called) is decided upfront. CBIC Circular dated 30/04/2019 further clarifies that GST exemption is available even when the lease amount is paid in installments, provided that the amount payable is determined upfront.

5. GST implication where no rent is collected: It would be safer to charge NIL rent or lesser than market rent in cases where GST is not applicable. All cases where GST is payable would be covered either under valuation or under schedule I which makes such applicable GST payable. Section 15 of the CGST Act 2017 provides that taxable value would be transaction value only when the supplier and recipient are not related to each other, and price is the sole consideration for the supply. Explanation to Section 15(5) is on related persons. Schedule I provides that supply between related persons or distinct persons when made in the course or furtherance of business would be activity to be treated as supply even if made without consideration.

6. It is a commercial practice while renting immovable property for commercial or personal use to take huge interest free advance from the tenant which influences the monthly rent. In those cases, the rent collected may be lesser than market rent on similar property at that location or even nil based on the agreed terms. Cases where GST is not applicable are safe only on GST perspective, as Income Tax Act also provides for notional rent in applicable cases. Wherever GST is applicable on renting, the cases are covered under Section 15 of the CGST Act 2017 and GST is payable.

7. When a company pays rent on behalf of the Director for residence of the director, the case is squarely hit by notification 05/2022 CT Rate and accordingly, the company is required to pay GST on such rent under RCM with effect from 18/07/2022. The question raised is whether it is in the course or furtherance of business. Based on Section 17(5)(g), ITC is not available, irrespective of the fact that rent is paid by the company on behalf of the director in the course or furtherance of business as section 17(5) starts with Notwithstanding anything contained in sub section (1) of Section 16. Accordingly, in such cases, while the company has to pay GST under RCM by debiting the CASH as ITC is not allowed for payment of RCM, the same is also not eligible for ITC as per the law stands as on date. The only remedy for this issue would be the challenge the validity of Section 17(5) itself.

8. The issues connected with GST on rent of immovable properties have several complexities and would be required to be decided on a case-to-case basis based on the facts and circumstances of each case.