Renting of residential dwelling unit to a registered person

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The irony is quite recently in the month of May 2022,  The Authority for Advance Ruling, Maharashtra in case of  M/S. KASTURI & SONS LTD, AAR held that GST applicability is not decided by the nature of the property but by the purpose for which it is used. Thus, GST exemption is allowed to applicant. You can read our earlier blog by clicking this hyperlink further. 

The ruling given by the West Bengal Authority for Advance Ruling, Goods and Services Tax, in the case of IN RE: M/S. BORBHETA ESTATE PVT. LTD was referred in the above ruling that the Applicant's service of renting/leasing out the dwelling units for residential purpose was, exempt under Si No. 12 of the Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017, as amended from time to time and the Applicant, therefore, was not liable to pay tax on supply of such service.

That said effective 18th July 2022, the following amendments were made to effect GST on rental income derived from residential units when rented to a registered persons under reverse charge Mechanism @ 18%. 

Serial 12 of Notification 12/2017 Central Tax (Rate) amended vide  Notification No. 04/2022 -Central Tax (Rate)  " Services by way of renting of residential dwelling for use as residence [except where the residential dwelling is rented to a registered person] 

Serial 5AA newly inserted to Notification No. 13/2017Central Tax (Rate) vide Notification No. 05/2022-Central Tax (Rate)-  " Service by way of renting of residential dwelling to a registered person" is subject to reverse charge mechanism under sec 9(3).

These amendments were in line GST Council's recommendations. 

To summarize, irrespective of whether the supplier of the services i.e. renting of residential units for dwelling purposes is registered or not under GST, only when its supplied to a registered person, its subject to GST on a RCM basis. The recipient of the services should be a registered person, and  uses the said service for the purpose of dwelling.


Wonder why this change is necessary? With the recent rulings, one can structure their supply of rental services in such a way to connect the dots among these attributes such as residential units> used for dwelling purposes> rented to business entity to evade GST. 

End of the day in the eyes of revenue the collection that matters though. Registered persons who now suffers GST on reverse charge basis can avail ITC as its not blocked under sec 17(5).



- LDR

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The opinions, suggestions or thoughts expressed are that of the author of this article, please exercise adequate care in applying to your own scenario with appropriate technical advise as deem necessary.


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