RCM Tax on residential property

[Ethirajan Parthasarathy]

Renting of residential unit to (GST) registered person is liable to GST under RCM.

A proprietor of a business entity is registered under GST. Is he liable to pay GST on house taken by him for is personal residence.

If yes, it may be additional burden for him since he cannot take ITC on such tax paid by him since the rent paid is personal expense. Can experts give their view on this.

[Amit Agrawal]

My preliminary views are as follows:

To avoid all these controversies, ideally, exemption should have been withdrawn and RCM liability should have been imposed 'where the residential dwelling is rented to a registered person in course of or furtherance of business of such registered person'.

On plain reading of recent amendments, your observations are right that such proprietor is liable to pay GST under RCM on residential dwelling taken by him for personal use AND he will not be entitled to avail ITC there-against.

This is so because proprietorship firm and proprietor is generally treated as one and same thing.

However, if such interpretation is indeed taken, such levy - in situation under discussion here - may be held as unconstitutional being discriminatory (between registered person and unregistered person, without any intelligent criteria / reason for such discrimination), tax on business or profession and so on.....

Such levy, if upheld, is essentially an additional burden (@18% of rent) on a proprietorship entrepreneur - who has to taken GST registration & contributing to state and Centre exchanger - just because he also needs to take residential dwelling on rent for personal use.

Any way, it is indeed need of the hour if Govt. comes with suitable clarification and amendment/s to avoid such burden upon hapless proprietor for getting residential dwelling for personal use.

These are strictly preliminary views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Please read first Para of above post as follows: - To avoid all these controversies, ideally, exemption should have been withdrawn and RCM liability should have been imposed 'where the residential dwelling is rented to a registered person for use in course of or furtherance of business of such registered person'.

[Ganeshan Kalyani]

In my view a person taking residential dwelling on his personal capacity for residential use then RCM is not applicable. This is because he is not registered but only his firm has been registered. Had his firm taken residential dwelling then RCM is applicable.

[Prakash and Thiagarajan]

Sirs, If a Company takes a residential unit for its employee's can we say it is for business purpose and avail ITC of the RCM paid on such rent.

[Kunal Agrawal]

In my opinion, this transaction in NOT the course or furtherance of business and does not satisfy definition of "SUPPLY" u/s 7, Hence, No GST is applicable.

And if we treat the same in the course or furtherance of business, then ITC and expenses both should be allowed.

[Amit Agrawal]

Dear Shri Ganesh S Ji,

W.r.t. query in your post at serial No. 4 above, in my view, ITC will be available assuming that it is park of perquisites given to the employee in terms of employment agreement.

However, for potential risks thereto (i.e. Dept's possible view to deny ITC) and its solutions, you may look at discussion at Issue-id 118044 bearing subject line as 'GST on rent of employee paid by employer'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

* part (not park) of perquisites

[Prakash and Thiagarajan]

Thanks Sirs.

[Amit Agrawal]

On subject issue under consideration here, please note that 'explanation' inserted vide NOTIFICATION No. 15/2022 -Central Tax (Rate dated 29.12.2022, which reads as follows:

“Explanation. -For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, –

(i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and

(ii) such renting is on his own account and not that of the proprietorship concern."

AI Summary

Reverse charge on residential rent clarified: exemption applies when a proprietor rents personally and not on the firm's account. Renting of residential dwelling to a registered person can attract RCM; proprietors renting a dwelling for personal use were initially seen as liable under RCM without ITC, but a notification clarifies that the exemption applies where the proprietor rents in his personal capacity for use as residence and the renting is on his own account and not that of the proprietorship concern.