GST applicability on Rental income to Director of company

[JIGAR SHAH]

One of our clients is a private limited company; it has given rent and interest to its director. Let's say the interest income was ₹ 15 lakhs and Rental Income was ₹ 6 lakhs. Further, he has rental income from outside party of ₹ 2 Lakhs.

What will be the total turnover under GST for the director? Whether interest income will be included to compute total turnover?

Whether GST will be charged on rental income of ₹ 6 lakhs or it will fall under reverse charge mechanism?

If total turnover will be ₹ 23 lakhs (15+6+2) whether GST will be payable on ₹ 2 lakhs and ₹ 6 lakhs GST will be paid by company under reverse charge mechanism?

[SHARAD ANADA]

Refer sec 22 of CGST ACT 2017

22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregateturnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

Aggregate turnover defined under sec 2(6) of CGST Act 2017

(6) “aggregate turnover” means the aggregate value of all taxablesupplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exemptsupplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess

Exempt supply is defined under sec 2(47) of CGST Act 2017

(47) “exempt supply” means supply of any goods or services or both which attracts nilrate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

Interest income is Nil rated supply as per notification 12/2017. Rent income of commercial property is taxable income as per notification 11/2017 but rent income of residential property used for residential purpose is Nil rated supply as per notification 12/2017.

So interest income and rent income from residential property is Nil rated supply and GST will not be applicable.

Interest income is Nil rated supply but rent income from commercial property is taxable supply and if aggregate value of supply is 20 lakh and more than GST will be applicable and all the provisions of GST will be applicable.

[JIGAR SHAH]

Thank You very much Mr.Sharad Anada,

I have one more query, Director is registered under GST. Pvt Ltd company pays rent to the director of the company. Who is liable to pay GST on Rent paid to the director ? Director of the company or Pvt Ltd company under reverse charge u/s.9(3).

[SHARAD ANADA]

Rent is always under forward charge and as director is registered 9(4) till 13.10.2017 is also not applicable. So director is required to charge GST in tax invoice issued to the company. This is transaction between two related parties. PL check valuation issue.

[Anil Seth]

Pl clarify what will happen if director is also receiving salary from company which is more than rs 20 lacs

[SHARAD ANADA]

Salary is covered under sch III of CGST Act 2017 hence it's not supply of goods and services

SCHEDULE III

[See section 7]

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.

[Balakrishnan Ramalingam]

RCM has to be paid by company, vide notification No. 13 of 2017 (S.No. 6) at the rate of 18% in respect of rent paid by the company to the director. The Director has to raise the invoice mentioning GST under RCM has be to paid by the recipient of Service (the company in this case)

[SHARAD ANADA]

As per my understanding service provide by a person in capacity of director is under reverse charge. As per notification service provider should be director of the company. A person providing renting services is under his personal capacity. For providing renting services one need not be a director of the company. One can provide all other services in his personal capacity. In my view sitting fees paid to a director as director of the company should be under reverse change. All other services provided by director in his personal capacity should be under forward charge.

Refer column (3) Supplier of service in N/N 13/2017 it mentions only A director of a company or a body corporate. It do not mention Individual. It means it covers post only and not entity. So Services provided by individual in capacity as director can be covered under this clause and service provided by director not in a capacity of director is out of this clause and RCM is not applicable but Forward change should be applicable.

[Balakrishnan Ramalingam]

The refered notification is plain. it just refers director. a director once refered as director, there is no need to differentiate in personal capacity or in the capacity of director. Hence other than salary, all services of directors, only RCM is leviable.

AI Summary

GST on rental income: distinguishes taxable commercial rent, nil rated interest, and reverse charge responsibility. Interest income and rent from residential property are nil rated supplies, while rent from commercial property is a taxable supply and counts toward aggregate turnover for registration under section 22; aggregate turnover includes all taxable and exempt supplies excluding inward supplies taxed under reverse charge. The allocation of GST on rent paid by a company to its director depends on whether renting services are treated as supplied in the director's personal capacity (forward charge) or fall under the reverse charge mechanism as contemplated by notification entries referring to a director.