GST on Electricity Charges in Rent & Maintenance fees

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The Electricity charges if bundled with rent or maintenance fee by real estate companies, malls or airports will be deemed to be a composite supply of Services and attract goods and services tax (GST) at the *rate of 18%*.


The CBIC has now issued a clarification vide Circular No. 206/18/2023-GST, dated:31-10-2023 on the question, whether GST is applicable on reimbursement of electricity charges received by real estate companies, malls, airport operators from their lessees or occupants

It has been clarified that whenever electricity is being supplied bundled with renting of immovable property and or maintenance of premises, as the case may be, it forms a part of composite supply and shall be taxed accordingly 

Here, the principal supply is renting of immovable property and/or maintenance of the premise, as the case may be, and the supply of electricity is an ancillary supply to it. So, even if electricity is billed separately, the supplies will constitute a composite supply and therefore, the rate of the principal supply that is the GST rate on renting of immovable property and maintenance of premise, as the case may be, would be applicable.

In fine, the tax would eventually have to be borne by the tenant which could impact rents and maintenance fee charged by the owner and GST should be deposited to the Tax department as the case may be.

This clarification issued also aligns with the West Bengal Advance Ruling on Airports Authority of India, which deemed the supply of electricity as part of a composite supply. 

This clarification could potentially lead to issue new notices to landlords who have not charged GST on electricity reimbursements.  This is not an amendment to the law but only an amplification of the existing provisions clarifying the intent of the legislation and therefore applicable from the appointed date. 

However, in case where electricity is supplied by the real estate owners, residents’ welfare associations or real estate developers, as a “pure agent” ie.,  when the charge is on actual amounts charged by state electricity board or discoms (distribution companies), it will not attract GST as a composite supply. 

Though circular has carved out an exception in case of ‘pure agent’ where the reimbursement is collected at actuals, it will be difficult to establish non-existence of a principal supply as a person cannot be considered to solely act as ‘pure agent’ for the purpose of collecting and discharging electricity charges. The businesses may have to obtain an authorisation from the actual consumer of electricity to act as its “pure agent” and to make payment to third parties on its behalf under a contract.

Well......

This clarification could potentially lead to issue new (shocking) notices to landlords who have not charged GST on electricity reimbursements.  This is not an amendment to the law but only an amplification of the existing provisions clarifying the intent of the legislation and therefore applicable from the appointed date. 

Thankfully, Individuals renting residential property need not worry as such supply of services are EXEMPTED


R.SRIVATSAN

NACIN, Chennai

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