Reverse Charge - Renting of Residential Premises

[Kaustubh Karandikar]

Two Directors of XYZ Pvt. Ltd. are owning a Residential Premises. These directors are also staying in the same premises. Rent for the premises is paid by XYZ to both the directors. Whether XYZ is liable to pay GST on the same under reverse charge as per the new provisions introduced?

[Manoranjan Behera]

Hi

The GST has to be discharged by the XYZ Pvt Ltd under RCM as per the new provision. (05/2022/ Central Rate/13-07-2022), as it satisfies the condition of the notification and the fact that the same has been used by the directors or any other person is irrelevant here.

[Manoranjan Behera]

Sorry...Since it is a residential property and used for Residential purpose, it is covered in the exemption notification No-12/2017. Hence no GST is applicable.

[PAWAN KUMAR]

Dear sir,

GST will be payable under RCM. by XYZ Pvt. Ltd.

[KASTURI SETHI]

If residential property is supplied to a registered person, it is taxable. Registered person means engaged in taxable business. Hence XYZ is liable to pay GST under RCM.

[Shilpi Jain]

In case the amount paid to the Directors is not in the nature of rent but as part of the remmuneration to them, no GST will be applicable.

LIability under RCM is only when rental service is provided to the registered person.

[KASTURI SETHI]

Yes, Madam but the word,'rent' is mentioned in the query.

[Ganeshan Kalyani]

RCM is applicable as an unregistered person (Directors) has given their residential unit to registered person (XYZ Pvt. Ltd). RCM is payable by XYZ Pvt Ltd.

[Nikhil Virkar]

In my view two separate transaction are involved in this case (1) Between Landlord and Directors and (2) Between Directors and XYZ Ltd.. Director pays to Landlord and I believe gets reimbursement from XYZ, which may be in form of remuneration. Hence (a) if Directors are registered persons in their individual capacity they are liable to pay tax under RCM, else not (b) if Directors are unregistered, exemption from payment of tax to landlord since residential use (c) There is no as such direct transaction between Landlord and XYZ Ltd., hence XYZ is not liable to pay tax under RCM. (d) Transaction between XYZ and Directors are under employee-employer relationship and hence transaction is out of tax net as per Schedule III. Hope Sir and Madam you are aligned. Please let me correct in case my interpretation is incorrect. Regards, Nikhil Virkar

AI Summary

Reverse charge on residential rent: companies may face GST obligations depending on exemption, characterization, and employer-employee nature.
Applicability of GST under the reverse charge mechanism for rent paid by a company to director-owners hinges on statutory notifications and factual characterisation. One view treats such payments as RCM-liable supplies to a registered person; another invokes an exemption for residential use. If the payment is remuneration or reimbursement within an employer-employee relationship, it may be outside GST under Schedule III. Liability also depends on whether directors are taxable persons in their individual capacity.