Due to various amendments in the GST Act, certain ambiguities are prevailing in the industry regarding the applicability of GST on the renting of residential property. The property can be let out in two ways, either for business use or for residential use.
This article briefly discusses the GST applicability on rent in the case where the residential property is let out for business purposes and as well as for the residential purposes.
GST on renting of residential property for business purposes:
Renting of residential property for business purposes is treated as “supply of services” and is taxable at the rate of 18% under the heading 9963 or 9972. This has been the case since the inception of GST and such GST is applicable on the forward charge mechanism.
GST on renting of residential property for residential use:
The Government has exempted the service of renting of residential property for use as a residence if the following conditions are satisfied:
- Service provider is providing the service of renting of residential property and
- The rented residential property is used by the tenant for the purpose of residence and
- Tenant is not registered under GST or
If tenant (proprietor of a proprietorship concern) is registered under GST then such renting shall be in his own personal capacity and not that of the proprietorship concern, for use for his own residence.
The Government has from time to time amended the provisions related to the renting of residential property for use as a residence. Let us discuss them in detail:
CBIC has issued notification no 12/2017 – Central Tax (Rate) dated 28-06-2017 also called the exemption notification exempting various services from the applicability of GST. Relevant entry no 12 (before any amendment) is reproduced here for the ready reference.
| Sl.No | Chapter, Section, Heading, Group or service code | Chapter, Section, Heading, Group or service code | Rate | Rate |
| 12 | Heading 9963 or 9972 | Services by way of renting of residential dwelling for use as residence | Nil | Nil |
The above notification clearly states that if the residential property is rented for use residence, then GST is exempt.
However, CBIC amended the above Sr. No 12 vide Notification No 04/2022 – Central Tax (Rate) dated 13-07-2022 with effect from 18-07-2022. The amended Sr. No 12 is reproduced hereunder
| Sl.No | Chapter, Section, Heading, Group or service code | Description of services | Rate | Condition |
| 12 | Heading 9963 or 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 |
The above amendment reduced the ambit of GST exemption available for renting of residential property for use as residence.
With effect from 18-07-2022, if the tenant is registered under GST, then the GST exemption shall not be available.
The question now arises as to who will pay the GST in case the tenant is registered under GST.
To avoid any hardships to the person who is providing the service of renting of residential dwelling, CBIC amended the Notification No 13/2017- Central Tax (Rate) dated 28-06-2017 vide Notification No 05/2022 – Central Tax (Rate) dated 13-07-2022 and introduced reverse charge under renting of residential property.
As per the said notification, the registered tenant shall pay GST under the reverse charge mechanism regardless of the status of the person providing the service of renting of residential dwelling.
The said notification 04/2022- Central Tax (Rate) dated 13-07-2022 increased the hardship of the tenants especially who were doing business as the proprietary concern.
As the said amendment did not consider the below two situations:
- Whether the tenant is taking the residential dwelling on rent for his personal use or for the furtherance of his business.
- Whether the tenant is taking the residential property on rent in his own personal capacity.
This leads to the genuine hardships for the proprietor of a proprietorship concern who were using the residential dwelling for use as residence as they now had to pay GST with effect from 18-07-2022.
In the case of Seema Gupta vs Union of India [2022] 142 taxmann.com 564 (Delhi) dated 27-09-2022, the honourable High Court of Delhi held that
“Renting of a residential dwelling by a proprietor of a registered proprietorship firm, who rents it in his/her own personal capacity for use as his/her own residence and not for use in course or furtherance of business of his/her proprietorship firm and such renting is on his/her own account and not that of proprietorship firm, is exempt from GST”.
On account of the recommendations received, CBIC vide Notification No 15/2022- Central Tax (Rate) dated 30-12-2022, with effect from 01-01-2023 inserted the below explanation in Sr No 12 of the exemption notification:
“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, –
- 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
- such renting is on his own account and not that of the proprietorship concern.”
The above explanation provides the much needed solution to the ambiguity arising out of the amendment.
DISCLAIMER: The Contents of this article are for information purpose only and does not tantamount to professional advice.