GST on Leasing / renting to Hostel

[SANJAY JAIN]

There is a Company A which owns 10 flats and Company B is in the business of running hostel and service apartments. The Company A entered the agreement of renting agreement of 11 months with Company B.

The Company B will further supply the services of these flats through 11 months rental agreement with various corporates for stay of their employees.

1. Whether the Company A claim the exemption of GST on this transaction as per the entry in notification no 12/2017 CGST for renting of immovable property for use as residence?
2. Whether the Company B can also claim the above exemptions since it has given these flats to Corporates for the residential use of their employees?

Thanks in advance.

Sanjay Jain

[KASTURI SETHI]

Dear Querist,

Pl.go through this decision of AAR, Odisha.

IN RE: M/S. NATIONAL ALUMINIUM COMPANY LTD., (NALCO) - 2018 (10) TMI 748 - AUTHORITY FOR ADVANCE RULING, ODISHA

 

 

 

 

[Mahak Dhirawat]

Exemption provided under notification 12/2017 of CGST is –

“Services by way of renting of residential dwelling for use as residence.”

Definition of “Residential dwelling” is not given in the Act. Therefore it has to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay.

Here in scenario- 1, where company A is giving services to Company B by way of giving its flats and Company B uses these flats for further supply and not for the purpose of residence. So this would not covered under this exemption notification.

However in Scenario – 2, where company B enters into agreement with corporates and corporate uses these flats for the accommodation of its employee. In this situation there can be two interpretation that –

1. This service taken by the company is for further supply where corporate charges or deduct from employee salary. In this situation it could not entertain exemption and tax invoice has to be raised on corporate and corporate can take credit on the same as not covered under 17(5).

2. This service taken by the company is ultimately utilized for the purpose of resident only. So the exemption can be availed.

Conclusion: Company A should raise tax Invoice to company B; Company B should not charge any tax to corporate i.e. entertain the exemption.

Experts views are invited in case of wrong interpretation.

[Ganeshan Kalyani]

In my view, the ultimate use of the residential property is for use as residence in this case. Therefore the exemption should be available at all stage i.e. when raising invoice by A on B and B with various corporates.

[KASTURI SETHI]

This is hypothetical question with a future plan. Query-wise reply is as under:-

1. NO. A cannot claim exemption as flats were not used by Bfor residential purpose. So A does not qualify exemption provided under Notification No.12/17-CT(Rate) (serial no.12).

2. B cannot claim exemption as flats were not used by C for residential purpose. So B does not qualify exemption provided under Notification No.12/17-CT(Rate) (serial no.12).

3. C can claim exemption as C has provided/supplied service to their employees (ultimate consumers called as D) for residential purpose.

A and B both cannot avoid tax at all. Also Board's Circular No.

Tenancy rights taxability under GST - Clarification

Circular No. 44/18/2018-CGST, dated 2-5-2018

AI Summary

GST exemption for residential renting may not apply when flats are leased to an operator who sublets as service accommodation. Where an owner leases flats to an operator who uses them as commercial accommodation, the supply from owner to operator does not qualify for the Notification No.12/2017 CGST exemption for renting of a residential dwelling for use as residence. If the corporate receiving accommodation uses it as a further commercial supply, the exemption likewise will not apply and tax invoicing and input tax credit consequences follow; if the ultimate use is genuine residence by employees, the exemption may be available.