Effect of recent amendment on renting of residential dwelling

 

CA Ayush Agarwal

 

In the recently concluded 47th GST Council Meeting, it was proposed to levy tax on renting of renting of residential dwelling to the registered person and hotel accommodation service having unit price up to Rs. 1,000/- per day, which were otherwise exempt vide entry no 12 and entry no 14 respectively of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (hereinafter referred to as the 'exemption notification').

 

CBIC has swamped in series of notifications in order to give effect to the recommendations of the GST Council.

 

Vide Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022, in entry no 12 of the exemption notification, words "except where residential dwelling is rented to a registered person' has been added after the words 'as residence'. Therefore, the new description of the entry no 12 in the exemption notification reads as below:

 

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

 

Prior to amendment, the scope of the entry was wider where only following twin conditions needs to be satisfied cumulatively by the lessor in order to claim exemption:

 

a. The property should be a residential dwelling i.e., the exemption is not available to commercial properties.

b. Such property should have been used by the tenant for the purpose of residence only i.e., in case the tenant carries out any business in the residential property, then the exemption will not be available to the lessor.

 

After the amendment, the scope of the exemption entry has been narrowed where, if the lessor gives a residential dwelling on rent to any registered person (i.e., the person registered under Section 25 of the Central Goods and Service Tax Act, 2017), then GST on the same shall be applicable whether or not the same is used for the purpose of residence.

 

It is also important to note that vide notification no. 05/2022-Central Tax (Rate) dated 13.07.2022, reverse charge notification no 13/2017-Central Tax (Rate) dated 28.06.2017 has been amended and entry no 5AA has been added to the same which reads as below:

 

 

Therefore, in case where residential unit has been rented out to the registered person, it is the tenant who is required to pay tax on the same under reverse charge mechanism.

 

From the reading of the above analysis of the law, certain situations can be contemplated which have been tabularised as below along with the applicability of GST on the same and the person liable to pay tax.

 

 

Renting of residential dwelling is covered under SAC 9972- Real Estate Services. Therefore, in terms of the principal rate Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, renting of residential dwelling to a registered person where tenant is required to pay under reverse charge mechanism shall be covered under item (iii) of entry no 16 of the Rate Notification which will attract tax @ 18%.

 

Further, if in accordance with the above provisions, tenant is required to pay GST under reverse charge mechanism, ITC of the same can be taken in full, subject to fulfilment of other conditions of Section 16 and Section 17 of CGST Act.

 

Another amendment that has been made vide notification no. 04/2022-Central Tax (Rate) dated 13.07.2022 is the omission of entry no 14 from the exemption notification which provided exemption to the hotel accommodation services having unit price up to Rs. 1,000/- per day. The same is reproduced as below:

 

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having "value of supply" of a unit of accommodation below or equal to one thousand rupees per day or equivalent.

 

Further, vide Notification No. 03/2022-Central Tax (Rate) dated 13.07.2022, Entry No 7 of the principal rate notification has been amended to levy tax @ 12% on the supply of hotel accommodation service having unit price even up to Rs. 1,000/- per day. The amended entry no 7 reads as below:

 

Supply of 'hotel accommodation' having value of supply of a unit of accommodation less than or equal to seven thousand five hundred rupees per unit per day or equivalent.

 

Now, in the case of hostel operators, where the rent is charged on per bed basis which may or may not include the cost of food and other facilities is going to be affected with this amendment. 

 

As per Circular No. 32/06/2018-GST dated 12.02.2018, it was clarified that hostel accommodation provided by trust to students can claim exemption under Sr. No. 14 of the Exemption Notification. Therefore, with the above amendment, this part of the circular has now become redundant. However, circulars only showcase the interpretation of the law by the Government, it is not the law in itself and cannot bypass any of the provisions of law.

 

In our humble opinion, providing hostel accommodation services to students or working professionals or to any other person shall be covered under SAC 9972- Real Estate Services as renting of residential dwelling for use as residence and the exemption can still be claimed under Entry no 12 of the Exemption Notification.

 

It is also important to highlight that this recent amendment shall come into force w.e.f. 18.07.2022. 

 

[Date: 19/07/2022]

 

(The views expressed in this article are strictly personal.)