GST on Notional Income

[Ethirajan Parthasarathy]

A GST registered person gives away commercial space to a trader by taking quite a large amount as refundable deposit. The understanding is the trader will use the space for business purpose for a period of 7 years without payment of any rent, after expiry of 7 years he has to surrender the place back to the Landlord who will return the large deposit received.

As per Income Tax Law the landlord has to pay Income tax on the notional rental income in respect of above arrangement.

I would like to know GST implication on the Land lord in the above circumstance.

[CASeetharaman KC]

As per Rule 27 of CGST Rules when the consideration is not wholly in Money then the following procedure needs to be followed to determine the value of Supply:-

Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,-

(a) be the open market value of such supply;

(b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;

(c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;

(d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.

As per the above dictum, the open market value of supply of the rental premises would have to be considered for payment of GST. This could be done by checking the rate at which similar properties are being let out in the same area

[DR.MARIAPPAN GOVINDARAJAN]

You may pay GST on the notional rent.

[KASTURI SETHI]

I support the views of both experts. I would like to add that such notional income is 'consideration' in terms of Section 2(31) of CGST Act, 2017. It is supply of service as per Schedule-II (Section 7 of CGST Act.2017.

AI Summary

Notional rent GST liability: GST payable on open market value for supply of premises where consideration is partly non monetary. The landlord's transfer of premises for a refundable deposit and no rent is consideration not wholly in money; GST value is the open market value (notional rent) of the supply, and that notional income constitutes taxable consideration for the supply of premises, giving rise to GST liability.