Renting a residential dwelling by registered proprietor in his personal capacity exempt under GST
Businesses can breathe easily as Finance Ministry has notified exemption from Goods & Services Tax (GST) on renting residential accommodation for personal use. This issue became a headline after a notification in July cast a shadow on the exemption.
A notification issued by the Finance Ministry, dated December 30, said that the exemption will cover “services by way of renting of a residential dwelling to a registered person where – (i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and (ii) such renting is on his own account and not that of the proprietorship concern.” This will come into effect from January 01, 2023.
This notification aims to implement the recommendation of the GST Council. In its meeting on December 17, it recommended that no GST is payable where the residential dwelling is rented to a registered person if it is rented in their personal capacity for use as their residence and on his own account and not on account of his business.
The exemption list under GST has an entry which prescribes no GST on ‘Services by way of renting of residential dwelling for use as residence.’ However, based on the recommendation of the GST Council, the Finance Ministry, in July this year, notified an amendment in this entry which made it clear that no exemption will be available in cases “where the residential dwelling is rented to a registered person.” This amendment was challenged in the Delhi High Court (Seema Gupta versus Union of India, 2022).
The petitioner submitted that the amendment particularly affects those who are doing their business as a proprietary concern. It is also averred that denial of exemption solely on the basis that the tenant is registered under GST is not based upon any intelligible differentia and the said differentia has no rational relation to the object sought to be achieved.
In its affidavit, the government accepted that July 13 notification does not specify that GST would be charged only where the registered person has rented (taken on rent) a residential dwelling in the course or furtherance of business. As the recommendations of the GST Council bind the government, a proposal to amend the July notification to bring in greater clarity regarding the taxability of registered persons is being examined to be placed before the GST Council, it said.
However, it reiterated that renting a residential dwelling to a proprietor of a registered proprietorship firm who rents it in his personal capacity for use as his own residence and not for use in the course or furtherance of business of his proprietorship firm and such renting is on his own account and not that of the proprietorship firm, shall be exempt from GST. Accordingly, the matter was placed before the GST Council in its December meeting, which recommend in favour of businesses.
Rate changes
Meanwhile, the Ministry has notified the NIL GST for the pulses husk, including chilka and concentrates. Also, GST on ethyl alcohol supplied to refineries for blending with petrol lowered to 5 per cent from 18 per cent. Further, Further, another notification prescribed 12 per cent GST on ‘Fruit pulp or fruit juice -based drinks’ (other than carbonated beverages).
