Tax Bulletin, February 2022 Volume - 130

APPLICABILITY OF GOODS AND SERVICES

TAX ON RENTING OF RESIDENTIAL
DWELLING

1. Background:
Taxability of the amount received for renting of
Residential Dwelling in GST Regime are identical to
as it was in 2012 (Negative Regime of Taxation in
Service Tax). and exempted under respective laws.
Hon’ble Finance Minister Mr. Arun Jaitley while
deciding the rate and exemption on services on 19
May 2017 at the GST Council Meeting have said that
they are following grandfather approach in deciding
taxability of services in GST regime

2. Relevant provisions under GST Laws up

to 17th July 2022 and amendments made and
effective from 18th July 20122.
2.1 GST is levied and payable under section on
supply of goods or services as provided in
section 7 of Central Goods and Services Tax
Act, 2017 (“CGST Act”) unless it is exempted
vide any notification issued under section 11
of CGST Act 2017. The term supply as defined
in Section 7 (1) is inclusive manner to include,
all forms of supply of goods or services or
both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or
agreed to be made for a consideration by
a person in the course or furtherance of
business.

2.2 Section 7(1A) provides that where certain

activities or transactions constitute a supply in
accordance with the provisions of sub-section
(1), they shall be treated either as supply of
goods or supply of services as referred to in
Schedule II i.e. it only differentiates a supply
CMA Niranjan Swain either as a supply of goods or a supply of
Cost Accountant services to invoke only if an activity is qualified
as a supply u/s Section 7(1).

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Tax Bulletin, February, 2022 Volume - 130

2.3 Entry – 2. Land and Building of Schedule II of 3.2 The expression ‘residential dwelling’ has not
Section 7(1) provides as follows. been defined under GST Laws. It is pertinent
to note that under the erstwhile service tax
(a) Any lease, tenancy, easement, licence to law, the expression ‘residential dwelling’
occupy land is a supply of services [The was defined in paragraph 4.13.1 of Taxation of
lease of tenancy of land can be of any Services: An Education Guide dated 20-6-2012
period - even 99 or 999 years]. which was issued by Central Board of Indirect
taxes and Customs which is reproduced below
(b) Any lease or letting out of the building for the facility of reference:
including a commercial, industrial or
residential complex for business or 4.13.1 What is a ‘residential dwelling’? Since
commerce, either wholly or partly, is a the phrase ‘residential dwelling’ has not
supply of services [This covers renting or been defined in the Act. It has therefore to
leasing of building. Even renting of part be interpreted in terms of the normal trade
of residential complex for business or parlance as per which it is any residential
commerce will be subject to GST. accommodation, but does not include
hotel, motel, inn, guest house, camp - site,
2.4. However, the Liability to pay GST did not arise lodge, house boat, or like places meant
as it was specifically exempted vide Entry 12 for temporary stay. Thus, in the aforesaid
of the CGST (Rate) Notification no. 12/2017 education guide issued by Central Board of
dated 28.06.2017 which is reproduced below Indirect Taxes and Customs which contains
for reference clarifications, it is provided that in normal
trade parlance residential dwelling means
Sl. Chapter, Section, Description Rate Condition any residential accommodation and is
No. Heading, Group of Services (%) different from hotel, motel, inn, guest
or Service Code house etc. which is meant for temporary
stay. The aforesaid clarification which is
(Tariff)
issued by the Board, in the absence of
(1) (2) (3) (4) (5) anything to the contrary in the Act, binds
to the department and the service provider
12 Heading 9963 or Services Nil Nil
may referred it in its case.
Heading 9972 by way of
renting of 3.3. The Supreme Court in Kishore Chandra
residential Singh v. Babu Ganesh Prasad Bhagat AIR
dwelling
1954 SC 316 has held that expression residence
only connotes that a person eats, drinks and
for use as
sleeps at that place and it is not necessary that
residence. he should own it. The aforesaid decision was
referred to by Bombay High Court in Bandu
A similar exemption was also Notified vide Notification No. Ravji Nikam v. Acharyaratna Deshbhushan
No. 9/2017 - Integrated Tax (Rate) dated 28-6-2017 Shikshan Prasara Mandal [2003] 3 Mhulj 470
(para 7.)
3. What is the residential dwelling:
3.4. It is well settled that when the word is not
3.1 To get exemption from services by way of defined in the Act itself, it is permissible to refer
renting of residential dwelling as notified to the dictionaries to find out the general sense
above, the burden is of course on the owner in which the word is understood in common
to show that his case comes within the parlance. (Refer: Mohinder Singh v. State of
parameters of the exemption notification. Haryana AIR 1989 SC 1367 and CCE v. Allied
Air - Conditioning Corpn. (Regd.) [2006] 7

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 Tax Bulletin, February 2022 Volume - 130

SCC 735). Therefore, it may also be referred as accommodation and contractors working
to the meaning of the expression ‘residence’ for them, professionals, banks, Post Office etc
and ‘dwelling’ as defined in Concise Oxford who have housed their business premises in
English Dictionary 2013 Edition as well as factory area and used for residential use for
Blacks Law Dictionary 6th Edition to ascertain the employees. The arrangement between
its meaning in common parlance and in owner and business entity is generally of P2P
popular sense which read as under: basis. The question was whether such lease
transaction was exempted from GST or not.
3.4.1. The Concise Oxford Dictionary:
Domicile: 1. the country in which a person 3.7. Appellate Authority of Advance Ruling,
has permanent residence. 2. the place Karnatak in case of Taghar Vasudeva
at which a company or other body is Ambrish ,2020 (41) G.S.T.L. 47 (App. A.A.R. -
registered. GST - Kar.) have held that

Residence: 1. the fact of residing Appellant co-owners of multi-story building

somewhere. 2. a person’s home. 3. the permitted by local authority to construct
official house of a government minister or said building for purpose of hostel, jointly
other official figure. leasing same to a lessee for sub-leasing to
students/single woman - In terms of Entry
3.4.2.Blacks Law Dictionary: Residence- No. 13 of Notification No. 9/2017-I.T. (Rate)
Place where one actually lives or has his exemption is available to services falling,
home; a person’s dwelling place or place inter alia, under Heading 9972 11 by way
of habitation; an abode; house where one’ of renting of residential dwelling for use
home is; a dwelling house. as residence - Said heading covers rental
or leasing services of residential properties
3.4.3.Dwelling- The house or other only - Term ‘residential dwelling’ has not
structure in which a person or persons been defined in GST law and accordingly
live; a residence; abode; habitation; the taking normal trade parlance, it cannot
apartment or building, or a group of include a hostel premises for which
buildings, occupied by a family as a place building was constructed - It is a socialable
of residence. Structure used a place of accommodation and not a residential
habitation. accommodation - Even, otherwise,
assuming but not admitting that said building
3.5. Thus, it evident that the expression is a residential dwelling in view of longer
‘residence’ and ‘dwelling’ have more or duration of sub-lease, still second condition
less the connotation in common parlance is not fulfilled inasmuch as it is not being
and therefore, no different meaning can used by recipient of services, i.e., lessee as
be assigned to the expression ‘residential residence - Lessee is using this building for
dwelling’ and it cannot be held that the business of subletting for providing hostel/
same does not include hostel which used for paying guest accommodation to students
residential purposes by students or working - Accordingly, exemption not admissible
women. to appellant lessor - Impugned AAR ruling
sustainable. [paras 9, 10, 11, 12, 13]
3.6. From above provisions of law, the renting
of residential dwelling for residential use 3.8. Against above Ruling the Appellant have filed
is exempt from GST. It is a fact that in many a Writ before Karnataka High Court (Taghar
transactions wherein the owner / co-owners Vasudeva Ambrish v. Appellate Authority for
who let out / lease out their residential Advance Ruling, [2022] 135 taxmann.com
property to a business entity and the same in 287 (Karnataka) while disposing the said Writ,
turn provided such premises on its employees it is held that

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Tax Bulletin, February, 2022 Volume - 130

Expression ‘residential dwelling’ to be owners who are giving the property on

understood in popular sense/common lease to business entity provided the end of
parlance - Residential dwelling in normal residential dwelling is for residential use.
trade parlance means any residential However, the GST Council in its 47th meeting
accommodation and is different from have recommended the withdrawal of the
hotel, motel, inn, guest house etc. which is given exemption when these services are
meant for temporary stay as per service tax provided to a registered person i.e. GST would
education guide issued by CBIC and same be applicable when a residential dwelling is
is binding on department - Residential rented to a registered person. Further, the
dwelling is being rented as hostel to notification of reverse charge on services has
students and working professionals fall also been amended to provide that the service
within purview of residential dwelling as by way of renting a residential dwelling to a
same is used by such persons as residence registered person would be subject to GST
- Benefit of exemption notification cannot under reverse charge. Thus, the registered
be denied on ground that lessee is not person receiving the above service would be
using premises as no requirement that liable to pay GST under reverse charge. On
lessee itself should use premises - Finding above amendment, with effect from 18 July
recorded by Appellate Authority for Advance 2022 the GST on renting a residential dwelling
Rulings (AAAR) that hostel accommodation to a registered person would be subject to GST
is more akin to sociable accommodation is under reverse charge. The recommendation
unintelligible and not relevant - Petitioner is to withdraw the exemption seems to override
entitled to benefit of exemption notification the impact of the above Karnataka High
- Ruling delivered by AAAR of Karnataka Court Judgment. Karnataka in case of Taghar
quashed [Section 6 of Integrated Goods Vasudeva Ambrish v. Appellate Authority for
and Services Tax Act, 2017] Advance Ruling, [2022] 135 taxmann.com
287 (Karnataka).
3.9. The ARR, Maharashtra, in case of M/s
Kasturi & Sons Ltd. [2022] 140 taxmann.com 4. Issue of Notifications related to amend-
256 (AAR – Maharatra) held that ments:

Letting out of residential building is in To implement the decisions of GST Council as above
nature of supply of real estate service and two notifications issued which are reproduced below for
classifiable under SAC 997211 - Language reference.
used in exemption entry makes it clear that Notification no. 04/2022- Service exemption notification no.
exemption is given on nature of property Central Tax (Rate) dated 12/2017- Central Tax (Rate) dated
and its usage and not by status of recipient 13th July 2022 28th June 2017 is amended.

- Exemption is available as residential Notification no. 05/2022- Reverse charge notification no.
properties will be used only as residences Central Tax (Rate) dated 13/2017- Central Tax (Rate) dated
13th July 2022 28th June 2017 is amended.
by staff of recipient-company - Residential
property let out for commercial purposes
can be classified as supply of services Entry 12 of notification no. 12/2017- Central Tax (Rate) dated
and GST is payable on same - Property is 28th June 2017 is amended vide Notification no. 04/2022-
given on commercial rent or residential rent Central Tax (Rate) dated 13th July 2022 as follows.
shall be based on nature of end use and
not nature of property - Exemption would Sr. Description of service Rate Condition
be admissible [Maharashtra Goods and No.

Services Tax Act, 2017] [Paras 5.5 and 5.7] Services by way of renting of residen-
tial dwelling for use as a residence ex-
12 NIL NIL
cept where the residential dwelling is
3.10. From above it may be concluded that the rented to a registered person.
exemption would also be extended to the

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 Tax Bulletin, February 2022 Volume - 130

4.1. Accordingly, with effect from 18th July unregistered person. First two conditions
2022, GST exemption is available only if all are same as earlier. However, addition of
the following conditions are satisfied – the condition 3 has changed the scenario.
Now, the exemption is available only if the
Condition 1 – Service provider is engaged service receiver is a person not registered
in providing service or renting of residential under GST. The following table briefly
dwelling; and Condition 2 – The residential summarizes the position under GST on rent of
dwelling is used for the purpose of residence residential property for use as residence post
by the service receiver; and Condition 3 – issuance of notification no. 04/2022- Central
The residential dwelling is rented to an Tax (Rate) dated 13th July 2022 –

Service provider Service receiver Taxable/ exempt Effective date

Registered Registered Exempt From 1st July 2017 till 17th July 2022

From 1st July 2017 till date [Such services provided

Registered Unregistered Exempt to unregistered person are exempt even after 18th July
2022]

Registered Registered Taxable From 18th July 2022

Unregistered Registered Taxable From 18th July 2022

Unregistered Unregistered Not Applicable Not Applicable

4.2. Applicability of GST applicable on rent under RCM:

Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 has amended basic reverse charge
notification no. 13/2017- Central Tax (Rate) dated 28th June 2017. As per the notification, sr. no. 5AA is
inserted which is tabulated hereunder –

Sr. No. Description of service Rate Condition

5AA Services by way of renting of a residential dwelling to a registered person. Any person Any registered person

4.3. Summery of the exemption and applicability of GST on renting of residential dwelling as effective from 18th
July 2022 –
Particulars Service provider Service receiver Taxable/ exempt

Service by way of renting of residential Taxable [GST is payable by the service

Registered Registered
dwelling for use as a residence receiver under reverse charge]

Service by way of renting of residential Taxable [GST is payable by the service

Unregistered Registered
dwelling for use as a residence receiver under reverse charge]

Service by way of renting of residential Exempted [as per notification no. 04/2022-
Registered Unregistered
dwelling for use as a residence Central Tax (Rate) dated 13th July 2022]

Service by way of renting of residential Registered/

Registered Taxable as forward charge
dwelling for use other than residence Unregistered

5. Press release by PIB on dated.12th August 2022 & 30th December 2022 vis a vis Notifi-
cation No. 15/2022- Central Tax (Rate) dated.30th December 2022:
(i) The Union government has clarified in a tweet, press information bureau (PIB) dated.12th August 2022
that “renting of residential unit taxable only when it is rented to business entity.” It further clarified that

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Tax Bulletin, February, 2022 Volume - 130

“no GST when it is rented to private person (iii) CBIC have issued Notification No. 15/2022-
for personal use; no GST even if proprietor Central Tax (Rate) dated.30th December
or partner of firm rents residence for 2022 effective from 1st January 2023
personal use.” in line with the Delhi High Court that the
exemption will cover “services by way
(ii) Subsequently a writ petition was filed of renting of a residential dwelling to a
before the Delhi High Court challenging registered person where – (i) the registered
the Notification No.04/2022-Central Tax person is proprietor of a proprietorship
(Rate) dated 13th July, 2022 whereby the concern and rents the residential dwelling
exemption which was earlier granted for in his personal capacity for use as his
renting of residential accommodation is own residence; and (ii) such renting is
no longer available to the GST registered on his own account and not that of the
tenants. The petitioner challenged proprietorship concern.” This notification
the relevant entry of Notification No. aims to implement the recommendation
04/2022-Central Tax (Rate), dated 13-07- of the GST Council. In its meeting on
2022 being ultra vires Article 14 of the December 17, it recommended that no GST
Constitution of India. is payable where the residential dwelling is
rented to a registered person if it is rented
The High Court held that where the in their personal capacity for use as their
residential dwelling is rented by the residence and on his own account and not
proprietor of a proprietorship firm in his on account of his business.
personal capacity for use as his own
residential dwelling and such renting is 6. Abstract and Pictorial Presentation of the
not on the account of his business but is taxability of resident doweling from 18th
rented on his personal account, then the July 2022.
exemption would continue to be available.
Further, it was also held that where the (a) Any Property to be used for Commercial
residential dwelling is rented by a partner purpose (Forward Charge): Any registered
of a partnership firm in his personal person let out any property for Business
capacity for his own residential use and purpose will be treated as Taxable supply and
not accounted for in the accounts of the Rent received for such let out by registered
partnership firm, the exemption would be Person will be taxable as forward charge basis
available. Similar position would be valid @18% with availability of ITC. If Registered
in the case of other forms of businesses. person is Composition Tax payer (thresh hold
Ref: Seema Gupta vs Union of India in limit of turnover Rs.50 lakhs) then GST rate will
case of W.P.(C) 10986/2022 & CM APPL. be 6% without ITC.
32131/2022 ( Delhi High Court) :

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 Tax Bulletin, February 2022 Volume - 130

Teanat is GST is Payable @

Registered Regular 18% & ITC is available to
Registered as Regular Tax Payer Tenant
Tax Payer

Landlord is Teanat is not GST is Payable @

Registered Tax Registered / Tenant 18% & ITC is not
Payer is Registered as available to Tenant
composition Tax Payer

Registered as
Composition Tax Payer Teanat is not GST is Payable @
Registered or Registered 6% & NO ITC
as composition Tax Payer available
Let out of any
or registered as regular
property
Registered as
for commercial use
Regular Tax Payer
purpose
NO GST Payable. RCM
Teanat is is also not applied as
Registered as Regular/ section 9(4) list is yet not
Landlord is not Composition Tax Payeras declared by Government
Registered Tax
Payer

Teanat is not
NO GST Payable
Registered Tax Payer

b. Any Property to be used for Residential purpose (Reverse Charge):

Any Registered person take property on Rent for Residential purpose from any person have to pay GST on
RCM basis as per Central GST Rate notification 05/2022 dated.13th July 2022 which is 18%. If Registered
person is Composition Tax payer (threshold limit of Rs.50 lakhs) than RCM GST rate will be 18% without ITC

GST is Payable @
Teanat is
18% & on RCM basis by
Registered Regular
Tenant & ITC is available
Tax Payer
to Tenant

Let out of any Landlord is Registered tax

property for commercial payer/compositon tax payer/not GST is Payable @
Teanat is
use purpose registered tax payer 18% & on RCM basis
Composition
Tax Payer by Tenant & ITC is not
available to Tenant

Teanat is not
Registered NO GST Payable
Tax Payer

7. ITC claim under GST on rent paid.

GST charged by the landlord / owner on rent charged under forward charge is available for ITC by the recipient
of service / tenant. When a tenant is registered and takes a residential property on rent from any person

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Tax Bulletin, February, 2022 Volume - 130

(registered or unregistered person) GST will be GST liability.

applicable under RCM. Liability to pay GST @
18% will be of the recipient (tenant/lessee) of (d) Situation – 4: When a residential dwelling
service. The recipient will also be able to claim is taken by a registered person on rent
the ITC of the GST paid under reverse charge for commercial purposes it will be treated at
as the payment of rent will be a business par with the commercial unit. If the landlord is
expenditure and the same is not included in unregistered then GST shall not be levied and
the list of blocked ITC u/s 17(5). A registered paid by either the landlord or the tenant. If the
tenant will have to pay GST on rent under the landlord is registered GST will be charged on
reverse change mechanism and then, claim a forward charge basis and the recipient can
input tax credit (ITC) on the payment made. take the ITC of the same.
However, Section 17(5)(g) of the Central Goods
and Services Tax Act, 2017 does not allow for 9. Renting Service supplied jointly by
input tax credit of GST paid for any services for co-owners:
‘personal consumption’. It is only applicable in
case on supplies for ‘business purposes’. 9.1. In case of a property is co-owned by two or
more persons, the exemption limit of Rs. 20
8. Taxability in the hands of different recip- lakhs or Rs.10 lakhs (as applicable ti few North
ients: Eastern Stated, pl be referred) as the case may
be is available separately to each co-owner.
(a) Situation – 1: When a company, LLP, Firm, AOP, The Authority of Advance Ruling in case of
BOI, etc takes a residential dwelling for the Elambrancheri Khaldoon, 2018 (18) G.S.T.L.
purpose of residence on rent for employees 152 (A.A.R. - GST) it is ruled that
it will be considered as an item of business
expenditure. GST will be paid under RCM and “SSI Exemption under GST (Threshold Limit)
the ITC of the GST paid under reverse charge - Rent of jointly owned immovable property -
can be claimed. Clubbing of Co-owner’s share - Although rent
of such immovable property is collected by
(b) Situation – 2: When a composition dealer who one co-owner for administrative convenience,
is registered under GST takes a residential same is equally shared by each of co-owner
dwelling for the purpose of residence on and such share of each co-owner is below
rent then it will be considered as an item of Rs.20 lakhs - Each co-owner is distinct legal
business expenditure. GST will be paid under entity and merely by joining with co-owners
RCM but the ITC of the GST paid under reverse in sharing rent, does not make them another
charge cannot be claimed as per section 10(4) different entity, unless there was any such
of CGS Act 2017 by a composition dealer. intention - There is no such intention in this
case - Even under Income Tax law, such co-
(c) Situation – 3: When an individual who is owners are assessed separately - Accordingly,
registered under GST as a proprietorship SSI/threshold exemption of Rs.20 lakhs
concern takes a residential dwelling for the available to each of co-owner separately -
purpose of residence on rent for himself/ herself Section 22 of Central Goods and Services
/ family then it will be considered as an item Tax Act, 2017. - [A precedent decision under
of personal expenditure and not the business Service Tax law as reported at 2017 (51) S.T.R.
expenditure of a proprietorship concern. GST 38 (Tri.-Chan.) referred]. [paras 3, 4, 5, 6]
will be paid under RCM but the ITC of the GST
paid under reverse charge cannot be claimed Registration - Threshold limit - Rent of jointly
as it is blocked per section 17(1) 2017 of CGST owned immovable property - Co-owner’s
Act. It is advisable for individuals to not take eligibility for registration - Since each co-
residential property on rent in the name of owner is a distinct and different entity, each
the business (proprietorship concern) to avoid entitled for threshold exemption of Rs.20

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 Tax Bulletin, February 2022 Volume - 130

lakhs - In instant case, share of each being 10.1. The notification(s) does not qualify the word
below this limit, registration under GST not “registered”. Therefore, if any recipient holds
required - Section 22 of Central Goods and a registration under GST Laws anywhere in
Services Tax Act, 2017. [paras 3, 4, 5, 6] India and has taken a ‘residential dwelling’
on rent, then the recipient would be required
9.2. Authority of Advance Ruling, West Bengal in to pay GST under reverse charge basis, in
case of Rabi Sankar Tah, 2019 (31) G.S.T.L. that state where such ‘residential dwelling’ is
154 (A.A.R. - GST) ruled that located. For this purpose, a fresh registration
in that State may be required and ITC of SGST
Registration under GST - Threshold limit paid on expenses incurred for the resident
- Clubbing of co-owner’s share of rented dwelling may be taken. This is because as
property - Association of Persons - Applicant, per provisions of section 12(3) of the IGST Act
one of three co-owners of rented property 2017, the ‘Place of supply’ in case of services
seeking to know as to whether they would in relation to immovable property will be the
be treated as Association of Persons (AOP) ‘location of such immovable property’.
for purpose of threshold limit for registration
- HELD : In instant case while entire rental 10.2. However, there is no bar to continue with
amount for the year on account services registration taken in the state other than the
of renting of immovable property exceeds state where immovable property situated.
threshold limit of ` 20 lakh, share of each of Since the ‘Place of supply’ in case of services
three co-owners is below aforesaid threshold in relation to immovable property will be
limit - Since co-owners are having definite the ‘location of such immovable property’,
and ascertainable share of consideration and the owner of the property located in a
for services, they will have to be treated state other than the state where immovable
separately for purpose of registration under property situated, may not require to take
GST law and not as Association of Persons - separate registration. If the property is
Even under Income Tax law, such co-owners situated in Bhubaneswar, then place of supply
are assessed separately - Catena of judgments will be in Bhubaneswar and if the landlord is
under erstwhile Service Tax laws, including also registered in Odisha, then it is an intra-
one Ruling under GST in Elambrancheri state transaction and CGST + SGST should
Khaldoon, 2018 (18) G.S.T.L. 152 (A.A.R. - be charged on the invoice value. But if the
GST) supporting this view - In view of above, landlord is registered in West Bengal, then
AOP cannot be treated as a person and share it will be an inter-state transaction and IGST
of each co-owner cannot be clubbed for should be livable because place of supply is
determining threshold limit for registration the location of the property which is in Odisha.
under GST - Gross turnover, separately of each
co-owner is determining factor of threshold 11. Invoice For GST On Rent:
for registration for each person - Section 22 If the landlord is required to levy GST on rent as forward
of Central Goods and Services Tax Act, 2017. charge, then the landlord has to issue Tax Invoice in
[paras 3.10, 3.13, 3.14, 3.15] accordance with the provisions of GST Invoice Rules. The
invoice should contain Invoice Number, Invoice date, rent
10. Place Of Supply Registered Person: charged, place of supply, Rate of GST, etc. as required
by GST laws. The Invoice must be serially numbered
The recipient (registered person) needs to start paying GST and clearly show the place of the immovable property.
under reverse charge mechanism. Since the notification However, when GST payable under RCM, the recipient
is effective from 18/07/2022, GST would be due on rent business entity will raise. Issue the tax invoice. It may be
accruing from such date. As per Section 2(94) of the Act, noted that the SAC (Service Accounting Code) for rental
2017, ‘registered person’ means a person who is registered & leasing falls under heading 9972. For rental or leasing
under section 25. services involving own or leased residential property fall
under SAC code 997211.

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12. Concluding Remarks: residential should be considered i.e. GST

12.1. From 18th July 2022, after these amendments, applicability is not decided by the nature of the
a registered person, be it individual or a property or agreement made by the business
company or a firm is liable to pay GST under entity but by the purpose for which it is used
RCM despite such residential dwelling is that is resident dwelling which is exempted
used as a residence. The registered persons from GST.
/ corporates entities who will use residential
dwellings for their employees / directors and 12.5. Under these circumstances, Department
they are entitled to consider rentals paid as should issue necessary clarification regarding
business expense are entitled to claim such leviability of tax under RCM when such
rentals as a business expense and be entitled services are used by those registered persons,
to avail input tax credit of GST paid under the who are not claiming such rentals as business
reverse charge mechanism taking a view that expenses. In other words, reverse charge
such expenses are in furtherance of business. should be applicable only for those registered
persons who are entitled to claim such rentals
12.2. The registered persons, who have been using as business expenses and eligible to avail
residential dwelling for use as residence and input tax credit of GST paid under reverse
not claiming such rentals as business expenses charge mechanism, otherwise, it would be an
would not be entitled for input tax credit of additional burden on the tenants (individual
GST paid under reverse charge mechanism as registered persons), who enter into rent
it is not in furtherance of business. agreement / lease deeds with the landlords for
using residential dwelling as residence and do
12.3. On amendment the Government intended to not claim such rentals as business expense.
levy tax on such residential dwelling, which are
given to corporates / registered person even 12.6. The amendment made and effective from
if such residential dwelling are used for the 18th July 202 shows that, the GST Council
residential purposes (up to 17th July 2018 such has no interest in simplifying the tax system
exemption was available). These amendments and enlarging scope of the tax net and no
have created discrimination amongst various consultation made with the stake holders.
scenarios, for instances renting of residential In amendment the Government may not be
dwelling by a registered person to an un- benefited when tax is paid under reverse
registered person for use as residence is not charge as it is given from one hand and taken
leviable to GST, however, on the other hand back from another hand nothing actually goes
when such services are provided to registered into Government’s kitty as GST Paid will be
person be it individual not claiming such taken as ITC. However the GST paid on inputs
rentals as business expense, who is using for services if used for provided for exempted
residence purposes, is liable to pay GST under output services will not available for ITC and it
reverse charge mechanism. will increase the cost.

12.4. Further, the nature of the end-use was

The Institute Of Cost Accountants Of India 23