Before July 18, 2022, services by way of renting residential property were exempted from GST. However, post July 18 there has been an amendment to the said exemption clause. As per the amendment now, services by way of renting of residential dwelling for use as residence is exempted from GST except where the residential dwelling is rented to a registered person.

Hence, now, renting residential immovable property to a registered person will be liable to GST. There has also been a further amendment, wherein GST must be paid by the registered recipient under reverse charge.

These amendments have attracted lots of attention regarding the applicability of GST, especially in the case where such renting is for personal use and not for business use.

Category of recipient

As per the amended exemption notification, what is exempted is renting of a residential dwelling if rented to a non-registered person. Hence any renting to a registered person will be liable to GST. The exemption provided is based on the category of the service recipient — that is, whether registered/unregistered — and not based on the usage of such unit — that is, for personal use or for business (like a guest house).

However, there were many interpretations circulating that GST will be levied on renting of all residential property even if used for personal use by a registered person, thereby increasing the burden on the common man. Subsequently, PIB, through its Twitter handle PIB Fact Check, has clarified such news as fake.

A recent trend is of the CBIC clarifying various tax positions through its various Twitter handles like @cbic_india, @ PIB_india, @ PIBFactcheck, etc. CBIC needs to appreciate the fact that posting such clarificatory tweets is not the solution. The tweet only adds to the confusion.

The authorities can throw light on any situation through clarificatory circulars, which have always been the case before the advent of Twitter. Clarificatory tweets are not acceptable in a court of law, whereas a circular has a binding effect on the authorities. Merely posting a tweet and clarifying the situation does not serve the purpose as such tweets only show the intent but are not law  per se.

Input tax credit

Another issue that needs to be clarified is the eligibility of Input Tax Credit (ITC) for GST paid by the registered person under reverse charge mechanism (RCM) on residential rent which is incurred for the furtherance of business.

Under GST, there are certain expenses on which ITC is not allowed and some are termed as blocked credit. The ITC on expenses that are used for personal consumption is blocked credit. However, the very fact that when GST is paid on expenses clarifies the issue that the said expenses are not for personal use. Hence ITC should be allowed.

However, the department in their overenthusiasm should not start denying ITC, as this could lead to an increase in litigation. Such scenarios arise when a company takes residential premises on rent for its directors/staff and after paying GST under RCM avails ITC for the same.

The authorities must appreciate the fact that GST is not a very simple law to clarify on Twitter. A circular in the matter would settle all issues and avoid litigation at all levels.

Mehta is Partner, and Joshi is Manager of GST, at NA Shah Associates

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