GST applicability on leased out property for residential purpose

[TEAM GST]

Dear Experts, seeks your valuable insights on the query set out below.

• Mr.A and Mrs.A are co-owners of a property intended to be leased out to Mr.C who is a consultant of BP ventures.
• Now, Mr.A is registered under GST as proprietor of another business, whereas Mrs A is not registered under GST.
• BP ventures is registered under GST.

Now,the Co-owners intent to lease out the property to BP Ventures for residential purpose of Mr.C and his family members.

Should GST be applicable under RCM basis on BP ventures in this scenario, if 'yes', can BP Ventures avail ITC on the same?

Further, would Mr.A's GST registration have any impact on the applicability of GST?

Dear Experts, seeks your valuable insights on the query set out below.

• Mr.A and Mrs.A are co-owners of a property intended to be leased out to Mr.C who is a consultant of BP ventures.
• Now, Mr.A is registered under GST as proprietor of another business, whereas Mrs A is not registered under GST.
• BP ventures is registered under GST.

Now,the Co-owners intent to lease out the property to BP Ventures for residential purpose of Mr.C and his family members.

Should GST be applicable under RCM basis on BP ventures in this scenario, if 'yes', can BP Ventures avail ITC on the same?

Further, would Mr.A's GST registration have any impact on the applicability of GST?

[TEAM GST]

Apologies, the query was posted twice by mistake. Regret the inconvenience . Kindly consider the below message as the correct one.

• Mr.A and Mrs.A are co-owners of a property intended to be leased out to Mr.C who is a consultant of BP ventures.
• Now, Mr.A is registered under GST as proprietor of another business, whereas Mrs A is not registered under GST.
• BP ventures is registered under GST.

Now,the Co-owners intent to lease out the property to BP Ventures for residential purpose of Mr.C and his family members.

Should GST be applicable under RCM basis on BP ventures in this scenario, if 'yes', can BP Ventures avail ITC on the same?

Further, would Mr.A's GST registration have any impact on the applicability of GST?

[Sanjeev Agarwal]

Yes. BP Ventures should ordinarily pay GST under RCM, while ITC is a higher-risk issue.

1. RCM applicability

From 18 July 2022, renting of a residential dwelling to a GST-registered person is covered under RCM under Notification No. 05/2022-CT (Rate).

Here:

• Mr. A and Mrs. A are landlords.
• BP Ventures is the contractual lessee and is GST registered.
• Mr. C and his family will occupy the property residentially.

Accordingly, BP Ventures should discharge GST @18% under RCM on the rent.

CBIC Notification 05/2022

2. ITC to BP Ventures

Conservative position: ITC should not be claimed.

Although BP Ventures can argue that accommodation provided to its consultant is a business expenditure under Section 16, Section 17(5)(g) blocks ITC on goods/services used for personal consumption.

Since Mr. C and his family are actually using the property as their residence, an ITC claim carries litigation risk.

The ITC position becomes stronger if BP Ventures can demonstrate that providing accommodation to Mr. C is a contractual/business necessity under the consultancy arrangement.

3. Mr. A's existing GST registration

Mr. A's GST registration for his proprietorship does not change the RCM position.

The RCM notification specifies the supplier as "any person." Therefore:

Landlord	GST status	Treatment
Mr. A	Registered	RCM by BP Ventures
Mrs. A	Unregistered	RCM by BP Ventures

Thus, Mr. A should not charge forward-charge GST merely because he is already GST registered, provided this transaction falls within the residential-dwelling RCM entry.

Recommended position: BP Ventures pays 18% GST under RCM on rent attributable to both co-owners; ITC should conservatively not be claimed unless a strong documented business nexus exists.

[TEAM GST]

In case the lease agreement is between the co-owners and Mr.C, then there will not be any GST impact .right sir?

 

[Sadanand Bulbule]

I welcome the reply.

[Sanjeev Agarwal]

Broadly yes, subject to an important qualification regarding Mr. A's existing GST registration.

If the lease agreement is directly between the co-owners (Mr. A and Mrs. A) and Mr. C, and Mr. C takes the residential dwelling in his individual/personal capacity for residence of himself and his family, then the position changes materially.

1. RCM would not apply

The RCM entry for renting of a residential dwelling applies where the recipient of the renting service is a GST-registered person.

If:

• Mr. C is the contractual tenant;
• he is not GST registered in his individual capacity; and
• BP Ventures is not a party to the lease,

then BP Ventures is not the recipient of the renting service. Consequently, BP Ventures should not have RCM liability merely because Mr. C happens to be its consultant.

2. Forward charge / exemption

Renting of a residential dwelling for use as residence, other than to a registered person, continues to be covered by the residential-renting exemption.

Therefore, where Mr. C personally leases and uses the property as his family residence, no GST should ordinarily arise on the residential rent.

3. Mr. A's GST registration

Mr. A being registered under GST for his proprietorship should not, by itself, make his share of residential rent taxable.

The relevant exemption is determined primarily by the nature and use of the property and status/capacity of the recipient, not merely because the landlord has a GST registration for another business.

Important safeguard

The documentation and actual conduct must support the structure. Ideally:

Lease: Co-owners Mr. C

Possession/use: Mr. C & family for residence

Rent obligation: Mr. C

BP Ventures: Not the lessee/recipient

If BP Ventures actually bears the rent under the lease or the arrangement shows that Mr. C is merely a nominee/occupant while BP Ventures is the real contractual recipient, the Department could examine the substance and RCM exposure may re-emerge.

Conclusion: A genuine direct residential lease to Mr. C for his/family's residence should ordinarily be GST-exempt, with no RCM on BP Ventures, notwithstanding Mr. A's separate GST registration.

[Sadanand Bulbule]

In fact what matter most is, whether tax invoice is issued in the name of the business entity holding GSTIN or in an individaul capacity like any other tenant. This is the crucial demarcating line between the taxability of subject transaction or otherwise. So examination of factual position determines the answer to the querry.

In terms of the notification referred above, it speaks of service recipeint as "registered person". Meaning the business entity althogh used for residential purpose of its office bearers. Such transactions normally happen in companies as perks and expenditure purpose as well.

[Sanjeev Agarwal]

Yes. The decisive test is the identity/capacity of the recipient of the renting service, while the name/GSTIN on the invoice and lease agreement are strong evidence of that identity.

Notification No. 05/2022-CT (Rate) places under RCM the service of "renting of residential dwelling to a registered person." Thus, residential use by itself does not prevent RCM where the recipient is the registered business entity.

Accordingly:

• Lease/invoice to BP Ventures with its GSTIN: BP Ventures is the registered recipient. RCM applies even though Mr. C and his family physically occupy the premises for residential purposes. This is comparable to companies taking residential accommodation for directors, employees or other personnel.
• Lease/invoice to Mr. C personally: If Mr. C takes the premises in his individual capacity for his/family's residence and BP Ventures is not the recipient, the residential-dwelling exemption should ordinarily apply, assuming Mr. C is not himself a registered recipient in the relevant capacity.

Therefore, the analysis should focus on who contracts for, receives and is liable to pay for the renting service, rather than merely who physically occupies the premises.

CBIC Notification No. 05/2022-CT (Rate)

One caution: merely issuing the invoice to Mr. C would not be sufficient if the underlying lease, payment obligation and commercial arrangement demonstrate that BP Ventures is actually the recipient. The lease agreement, invoice, payment trail and accounting treatment should all consistently support the intended position.

Thus, I agree that examination of the factual arrangement is crucial; the invoice/GSTIN is an important demarcating indicator, but should be read together with the contractual substance.

[TEAM GST]

Thank you sir, sincerely appreciate your valuable insights

[Shilpi Jain]

BP Ventures registered under GST is required to pay GST under RCM irrespective of the registration status of the landowners.

Why is BP Ventures taking property on rent for Mr. C? Implication of this under GST has to be also examined.

ITC eligibility in the hands of BP Ventures requires further examination of facts - why taken on rent.

AI Summary

Residential renting to registered businesses attracts reverse charge, while input tax credit depends on documented business necessity.
Residential property leased to a GST-registered business entity as contractual lessee is subject to reverse charge, notwithstanding residential occupation by its consultant and family. The landlords' GST registration status does not change this treatment. Input tax credit on reverse-charge tax is uncertain where the accommodation is used personally, unless a documented business necessity under the consultancy arrangement establishes a sufficient business nexus. A direct lease to the consultant personally for family residence may ordinarily remain exempt if the business entity is not the actual recipient and the contractual and payment arrangements support that position.