GST Under Reverse Charge Mechanism Is Applicable On Services Of Renting Residential Premises as Guest House: AAR

The Odisha Authority of Advance Ruling has held that GST under the reverse charge mechanism is applicable to services by way of taking residential premises on rent for use as its guest house.

The two-member bench of Gopal Krishna Pati and P.K. Mohanty has observed that the nature of rented properties clearly appeared to be residential properties used for commercial purposes.

The applicant has taken on rent certain premises in New Delhi and Jajpur, Odisha, as guest houses. The guest houses are used to provide food and accommodation for the employees of the company who visit New Delhi for official purposes and also for the employees who visit the mining office at Jajpur. While one of the apartments is rented by a registered person, the other is rented by an unregistered person. In both cases, the houses taken on rent for guest house purposes are in a residential area and are used by the applicant company as the guest house for its employees.

The applicant has stated that the term "residential dwelling" is not defined anywhere in the GST Act or in the earlier Service Tax regime. However, the Central Board of Indirect Taxes and Customs in its education guide dated June 20, 2012, has explained the phrase "residential dwelling" in clause 4.13.1 by interpreting the term in normal trade parlance as any residential accommodation that does not include hotel, motel, inn, guest house, camp-site, lodge, houseboat, or other places meant for a temporary stay.

The applicant has sought an advance ruling on the issue of whether services received by a registered person by way of renting residential premises used as a guest house by the registered person are subject to GST under the forward charge mechanism (FCM) or the reverse charge mechanism.

The AAR has held that GST will be applicable even if the residential property is rented out to a registered person w.e.f. July 18, 2022. The liability to pay 18% GST under the reverse charge mechanism will arise on the recipient (tenant), if he is a registered person under GST with no other condition. It may be noted that the type or nature or purpose of use of a residential dwelling, i.e., for residence or otherwise by the recipient, has not been a condition in the RCM notification. Hence, the service of renting a residential dwelling to a registered person would attract RCM irrespective of the nature of the use.

Applicant’s Name: Indian Metals and Ferro Alloys Limited

Date: 23/02/2023

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