GST on Commercial Rent - NRIs

[Ethirajan Parthasarathy]

The Karnataka AAR in the case of Nagabhushana Narayana - 2023 (4) TMI 903 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA has held that if a non-residents let out his commercial property in India through his Power of Attorney (GPA) holder, than that GPA holder has to register himself and pay applicable GST.

My queries are :-

1. Whether the above ruling is subject to general exemption available for persons having aggregate turnover of 20 lakh

2. As per AAR judgment, rent payable to non-resident is shifted to forward charge provided GPA is involved. In such situation, whether the tenant should stop paying tax under RCM even if GPA holder is not registered under GST.

3. GPA holder of non-resident may be asked to pay applicable GST for past years also. In such a situation what will happen to IGST paid by tenants under RCM and ITC utilized on such payments for earlier years

4. If the aggregate turnover of non-resident is less than 20 lakh & getting commercial rent, there should be no GST impact either under forward charge or RCM (since it is no longer import of services). Is my view correct.

5. In a situation where GPA holder is in Karnataka & the commercial property of the NRI is in Tamilnadu, whether IGST is applicable or CGST/SGST

[Shilpi Jain]

First aspect to remember is that advance rulings are not court rulings and they are not binding on any assessee other than the applicant.

Also it is a settled principle in law that for a transaction tax paid once either by supplier or recipient is sufficient. department cannot again demand tax for the same transaction on the guise that the wrong person has paid the tax.

In your case weather the tenant is a registered person?

Is it a commercial or residential property?

[Padmanathan KV]

In principle I do not agree with the AAR. GPA holder does not become the supplier of service and the NRI remains the supplier of service. Look at it from Income tax perspective. Whose Income is it? It is Income in the hands of the NRI. NRI has to pay Income tax. It would lead to a bizarre situation if GPA holder is paying GST and TDS is deducted from/ Income Tax is paid by NRI. If Income from the property is taxable in hands of NRI, he should be the supplier of service also in my view.

Now to answer your query,

1. The NRI shall also get the benefit of 20 lakhs exemption.

2. There is no question of any RCM on renting of commercial property. It is the sole liability of the supplier to collect and pay GST. If the supplier fails to do so, liability WILL NOT be shifted to recipient.

3. There will not be any impact in my view as the recient was not liable to RCM in first place. The Dept may disallow the ITC and you have to rely on bajaj allianz decision of CESTAT to contest.

4. You are correct.

5. In my view, the NRI has to take registration in the place where the immovable property is situated and pay CGST+SGST accordingly.

I am open to contrary views as well.

[Ethirajan Parthasarathy]

Dear Ms.Shilpi,

Thanks for clarifying GST paid by either by supplier or recipient is enough and the other “defaulting” party cannot be proceeded with. Probably you are invoking the concept of “revenue neutrality”

I understand that AAR Ruling is not binding on other parties. But nothing prevents the dept. to demand tax giving reasons stated in AAR as their own.

Yes, it is a commercial property let out to registered person.

Hence, I have raised other related queries in my post.

[Ethirajan Parthasarathy]

Dear Mr.Padmanathan,

Invariably service is rendered by a Non-resident from abroad is treated as “import of service” as per section 2(11) & such import of service are liable for tax under RCM as per Notification No. 10/2017-IGST dated 28.06.2017

This reasoning is put forward by the applicant in the AAR petition under discussion.

I also thought about mismatch in the turnover between income tax & GST.

For me it looks like that GPA has to register on behalf of non-resident as “authorized signatory” & pay applicable GST. Under this situation, there will be no mismatch.

[Padmanathan KV]

GPA can be authorized signatory, but then the registration will be under the PAN of NRI isnt it? I do not agree to the concept that GPA holder becomes the supplier of service.

Regarding "import of service", pls consider whether the location of commercial property will be treated as "location of supplier of service". In that case, location of supplier will also be in India and it will not be import of service. Some how, I am not able to convince myself there can be an inter-state supply involved in case of immovable property services. I have always been of the view that the supplier has to register whether is there an immovable property.

Like I mentioned before, I am open to contrary views

[Shilpi Jain]

Revenue neutrality cannot be a reason for non payment of tax. It can at best avoide penalties.

The concept here being that the tax on the transaction has been paid. So it would be profiteering by department in case it again proceeds to collect from the other party in the transaction.

[Shilpi Jain]

The definition of supplier includes agent acting on behalf.

AI Summary

GST Required for GPA Holders on NRI-Owned Property Rentals; Debate on Turnover Threshold and RCM Implications The forum discusses the applicability of GST on commercial rent for properties owned by non-resident Indians (NRIs) and managed by General Power of Attorney (GPA) holders. A ruling by the Karnataka Authority for Advance Rulings (AAR) mandates that GPA holders must register for GST and pay applicable taxes. Participants debate whether the ruling applies if the NRI's turnover is below 20 lakh and whether the tenant should stop paying GST under Reverse Charge Mechanism (RCM). The discussion also addresses whether GST should be paid as CGST/SGST or IGST, depending on property location, and the implications of revenue neutrality.