GST Update on rate of tax on renting of property to lessee for running lodge 113/2020-21

There is exemption on letting out of residential dwelling for use as residence but what about the situation wherein a commercial property such as hotel is being let out to a company for providing accommodation services to third parties? Whether the exemption would be available to the renting of non-residential/commercial properties for further sub-letting it for use as residence? This issue was raised before Andhra Pradesh Authority of Advance Ruling (AAR), in the case of M/s Lakshmi Tulasi Quality Fuels and is the subject matter of discussion in our present update.
The applicant is engaged in the business of operating, running and managing the day-to-day operations and sub-lease of the residential establishments to the businessmen for the purpose of long-stay accommodation. The applicant sought the ruling of AAR on the issue that whether the applicant will enjoy an exemption from GST, under Sl. No. 13 of the Notification No.9/2017 dated June 28, 2017, for the receipt of monthly payments against the lease of her residential premises to D-Twelve Spaces Private Limited.
As per the terms of the Lease agreement, in consideration of grant of lease to use and possess the aforesaid property the lessee is required to pay to the applicant a monthly rent of Rs 7,20, 000/- and all operational costs such as electricity, telecom and water charges as per the actual meter reading, food catering, hospitality, security, cleanliness, event organization, transportation, management and supervision of the total property. Further, as per the terms of the lease agreement, the lessee has the right to sublease the aforesaid property during the lease term to any third party with prior intimation to the applicant for the purpose of long stay accommodation. The lessee shall have the right to deploy branding strategies on the total property and use all entrances, exterior walls, areas and structures on the total property, at its own costs and expense, to put up nameplates, hoardings, flyers, boards and any other signage or advertisements (Signage) for this purpose.
The AAR held that though the applicant claims that she has rented out residential dwelling for use as residence, it appears that the premise is a non-residential property. Considering the number of rooms and amenities provided in it, boarding and hospitality services extended to the inmates and all the clauses of the agreements, it appears that the building was constructed for the purpose of running a lodge house. It is clear that the lessee is engaged in commercial activity of renting of rooms in the dwelling and providing boarding and hospitality services to the inmates. Therefore, it is clear that the lessor has rented out dwelling for commercial activity, and supply of such services, is classifiable as “Rental or leasing services involving own or leased non-residential property” under SAC 997212, taxable in the hands of the lessor and is liable for GST at the rate of 18%.

From the above advance ruling, it is clear that the exemption is only for renting of residential property for use as residence and not in any other situation as tabulated below for easy reference:-

Property Type	Purpose	Effect in GST
Residential	Residential	Exemption as per Services by way of renting of residential dwelling for use as residence
Residential	Commercial	Taxable
Commercial	Residential	Taxable
Commercial	Commercial	Taxable

Hence, the property and the purpose both should be residential in order to claim exemption from GST.

This is solely for educational purpose.

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GST Update on rate of tax on renting of property to lessee for running lodge 113/2020-21

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