Rental Income by Director from Company

[Raveendran PM]

Issue : 1

Director had let out his commercial property in 2021-22 to its company, where company had paid under Reverse Tax , being there was grey area on this aspect, on which CBIC clarified in Aug-2023 m that such income should be under forward charge only .

Rental Income for 2021-22 was 23 lakhs and 2022-23 -29 lakhs.

What recourse to be taken now ?

Form 2023-24, after the above clarification no RCM paid by the company, and director want to take the registration , on crossing 20 lakhs, If it is correct?

Issue : 2

Can Director give his residential property to its company at nominal value , say as consent Fees, on considering the Rule 28 provisions . As the liability under reverse charge, company can avail IT

CA. Raveendran P M

[Pradeep Reddy Unnathi Partners]

Issue 1

Since GST has already been paid by the Company, no GST liability should arise in the hands of Director on the same income again. It is advisable to obtain declaration from the company that they have GST under reverse charge on such rent. Such declaration can be furnished to the GST authorities (a) in the event the GST authorities raise demand on the director, or (b) upfront to avoid allegations of fraud, suppression etc later by the department

Issue 2

yes Director give his residential property to its company for rent. As regarding valuation, it must be noted that director and company are considered as related parties as per section 15 of the CGST Act. Given this, GST shall be payable on the rental value based on the market rates but not nominal.

Company avail ITC of such GST paid.

[Raveendran PM]

Thanks Pradeep ji .

Issue 1. - Your reply understood.

Issue 2

I am on Rule 28 of the CGST Rules : Second Provisio :

Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

In the current case, being RCM in the hand of company and the same is eligible for full input tax credit, is market value come in to play for for Invoice Value ?

[Padmanathan KV]

I agree with Pradeep JI. There are lot of judgement in ST regime stating that where recipient has paid, it cannot be taxed in hands of supplier. Pls refer M/s. Aadarsh Sri Sai Manpower Solution (p) Ltd., vs Commissioner, Customs, Central Excise & Service Tax - 2023 (7) TMI 917 - CESTAT NEW DELHI.

[Pradeep Reddy Unnathi Partners]

I stand corrected on issue 2. Value can be a nominal value as long as company is eligible for full credit i.e. not engaged in exempted activity from said premises

[Raveendran PM]

Thanks , Pradip Ji

AI Summary

GST treatment of director rental income: prior company payment under reverse charge removes duplicate liability; valuation depends on ITC eligibility. For rent paid by a company to its director, GST already discharged by the company under reverse charge eliminates duplicate GST liability for the director; obtain a company declaration to evidence reverse charge payment. Under related-party rules and Rule 28, where the recipient company is fully eligible for input tax credit and not engaged in exempt activities for the premises, invoice value may reflect market value or, alternatively, a nominal consideration may be acceptable with GST claimable by the company as ITC, subject to documentation of ITC eligibility.