GST Applicable on Tenant Compensation for Alternate Accommodation & Delayed Possession

The Authority for Advance Ruling held that the compensation received by the tenant for alternate accommodation and delayed possession from the developer is subject to GST. The amounts paid for vacating the premises and tolerating the delay are considered supplies of services under the GST Act. Consequently, GST is applicable on both types of compensation. The applicant has the option to appeal this ruling with the Appellate Authority, Advance Ruling Maharashtra, following the prescribed procedure within the specified time frame.

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Issues Involved:
1. Applicability of GST on compensation for alternate accommodation paid to the tenant by the developer/owner.
2. Applicability of GST on compensation for alternate accommodation/damages for delayed handover of possession of new premises paid to the tenant by the developer/owner.

Detailed Analysis:

Issue 1: Applicability of GST on Compensation for Alternate Accommodation

The applicant, a tenant, vacated the premises for redevelopment by the developer. The developer agreed to pay the tenant Rs. 2,05,000/- per month for the first 24 months as compensation for alternate accommodation. This compensation is paid because the tenant agreed to vacate the premises, facilitating the redevelopment process. As per Section 7 of the GST Act, a supply includes all forms of supply of goods or services made for a consideration in the course or furtherance of business. The act of vacating the premises is considered as agreeing to the obligation to refrain from an act, which is treated as a supply of services under Schedule II, clause 5(e) of the GST Act. Therefore, the compensation received for alternate accommodation is subject to GST.

Issue 2: Applicability of GST on Compensation for Delayed Handover of Possession

The agreement also stipulated that if the developer failed to hand over the new premises within 24 months, the tenant would receive increased compensation for the delay. The compensation would be Rs. 2,25,000/- per month for the next 6 months and Rs. 2,47,000/- per month for the subsequent 6 months. If the delay extended beyond 36 months, the tenant would receive Rs. 5,00,000/- per month as damages. This compensation for delayed possession is also considered as agreeing to tolerate an act or situation, which falls under the definition of supply of services as per Schedule II, clause 5(e) of the GST Act. Consequently, GST is applicable on these amounts as well.

Conclusion:

The Authority for Advance Ruling held that the amounts received by the applicant, whether for alternate accommodation or for delayed handover of possession, are subject to GST. The compensation for vacating the premises and tolerating the delay in handover is considered a supply of services under the GST Act.

Order:

1. GST is applicable on the compensation for alternate accommodation received by the tenant.
2. GST is applicable on the compensation for alternate accommodation/damages for delayed handover of possession of the new premises received by the tenant.

The applicant has the right to appeal this order with the Appellate Authority, Advance Ruling Maharashtra, within the stipulated time frame and as per the prescribed procedure.

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