Property leased for commercial use loses residential dwelling status and GST exemption under notification 05/2022

The AAR Rajasthan ruled that a residential property leased for commercial use does not qualify as a "residential dwelling" under GST notification No. 05/2022. The property was leased to establish a branch office, making it commercial in nature despite its original residential classification. The lessor must pay 18% GST on forward charge basis under tariff heading 997212. The lessee is not liable for GST under reverse charge mechanism. The ruling emphasized that the actual purpose of use and intended length of stay are key factors in determining whether a property qualifies as residential dwelling for GST exemption purposes.

---

---

Issues Involved:
1. Whether the demised premises will be covered in the definition of residential dwelling for the purpose of notification No. 05/2022-Central Tax (Rate) dated 13/07/2022.
2. Factors important to include in the definition of residential dwelling.

Summary:

Issue 1: Definition of Residential Dwelling
The applicant, an unregistered Chartered Accountant, leased a property to a company for commercial use. The property, although residential by land use, is used by the lessee for establishing a branch/office. The applicant sought clarity on whether the demised premises would be considered a residential dwelling under notification No. 05/2022-Central Tax (Rate) dated 13/07/2022. The authority examined the lease agreement, which specified the property's use for commercial purposes, and the electricity bill indicating a commercial connection. It concluded that the property is leased for commercial use and does not qualify as a residential dwelling under the said notification. Therefore, the renting service is taxable at 18% under forward charge, and the lessee is not required to pay GST under RCM.

Issue 2: Factors for Definition of Residential Dwelling
The applicant sought clarity on the factors important for defining a residential dwelling. The authority referred to various dictionaries and legal precedents to determine that the primary factors are the purpose for which the dwelling is put to use and the length of stay intended by the users. The authority emphasized that the structure and intent of use are paramount in determining whether a property qualifies as a residential dwelling.

Ruling:
1. The demised premises will not be covered in the definition of residential dwelling as per notification No. 05/2022-Central Tax (Rate) dated 13/07/2022 because it is used for commercial purposes.
2. The important factors to include in the definition of residential dwelling are the purpose for which the dwelling is put to use and the length of stay intended by the users.

---