GST UPDATE No 263 ON TAXABILITY OF RESIDENTIAL DWELLING UNDER RCM:-

The recent 47^th GST Council Meeting had introduced payment of GST on services by way of renting of residential dwelling to a registered person under reverse charge mechanism. However, there are lot many issues that need clarification from the part of government. The present update seeks to discuss the various complexities of the amendment made and their GST implications thereon.

It is submitted that the exemption entry no. 12 of the notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 regarding renting of residential dwelling has been amended which reads as follows:-
“Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person.”

In contrast, the entry no. 5AA inserted in the notification no. 05/2022-Central Tax (Rate) dated 13.07.2022 pertaining to reverse charge mechanism reads as follows:-
“Services by way of renting of residential dwelling to a registered person.”

It is worth mentioning that the reverse charge notification simply mentions “renting of residential dwelling” and does not specify the usage of such residential dwelling. However, the exemption entry specifically uses the phrase “renting of residential dwelling for use as residence”. Now, the question arises is that whether renting of residential dwelling for use as office attract GST under reverse charge mechanism if given on rent to registered person. If the language of the reverse charge notification is examined, it can be inferred that renting of residential dwelling, even for purpose other than use as residence would attract GST under reverse charge mechanism as if at all the intention was otherwise, the language would have specifically mentioned the phrase “renting of residential dwelling for use as residence”. Hence, a clarification in this respect is much needed from the government.

Furthermore, the registered recipient would be required to pay GST under reverse charge mechanism but the question arises is the determination of the nature of tax to be paid. According to section 12(3)(b) of the IGST Act, 2017, the place of supply of services by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located. Hence, in case of renting of residential dwelling, the place of supply will be the location of such residential dwelling. The nature of tax that will be leviable depends on the location of the supplier and the place of supply. The determination of the nature of tax is explained with the help of following examples:-

LOCATION OF SUPPLIER	LOCATION OF RECIPIENT	LOCATION OF RESIDENTIAL DWELLING	PLACE OF SUPPLY	NATURE OF TAX	WHETHER REGISTRATION TO BE TAKEN BY RECIPIENT?
Maharashtra	Rajasthan	Maharashtra	Maharashtra	Maharashtra CGST/SGST	Yes, in the state of Maharashtra
Maharashtra	Rajasthan	Rajasthan	Rajasthan	IGST	No need to take registration
Maharashtra	Maharashtra	Maharashtra	Maharashtra	Maharashtra CGST/SGST	No need to take registration

It is to be noted that in case where the location of supplier and the location of residential dwelling is in the State other than the state of recipient of service, the receiver is liable to pay the CGST/SGST of the State in which location of service provider is located; for which registration is required to be taken by the recipient in such State. Hence, in the situation no. 1 in the above table, the service recipient is liable to get registered in the State of Maharashtra for discharging its GST liability under reverse charge mechanism. This will lead to unnecessary compliance burden on the service recipient as they need to obtain normal GST registration also in Maharashtra. For example- if the residential dwelling is used as guest house by employees of the company, the said company will need to obtain normal GST registration for making payment of tax under RCM. However, the input tax credit of the tax so paid will not be available as it will be objected as restricted under section 17(5)(g) of the CGST Act, 2017 as goods or services or both used for personal consumption which will be considered as cost to the company. On the contrary, if the residential dwelling is being used for commercial purposes such as a marketing office, the recipient will need to obtain the normal GST registration in Maharashtra and ISD registration in Maharashtra so that the input tax credit of tax so paid by the normal registration in Maharashtra can be transferred to the recipient registered in Rajasthan via ISD located in Maharashtra.

The complexities as pointed out needs to be resolved by the government by issuing a suitable clarification so that unnecessary compliance burden can be avoided

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GST UPDATE No 263 ON TAXABILITY OF RESIDENTIAL DWELLING UNDER RCM:-

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