The Authority for Advance Rulings, Rajasthan in the case of M/s. Deepak Jain, vide Order No. No.- RAJ/AAR/2023-24/14 dated 29.11.2023, has held that the letting out of residential property for commercial use, it would be considered as ‘renting for commercial use' and would be covered under 997212 and taxable @ 18%. The important factors to be included in the definition of Residential Dwelling is the purpose for which the dwelling is put to use and the length of stay intended by the users. Also, in such cases the lessor is supposed to pay GST under Forward charge basis. The lessee would not be required to pay GST under RCM basis in term of Notification No. 05/2022-Central Tax (Rate) dated 18.07.2022.
In this case, the Applicant (lessor) is an unregistered person under GST law. The Applicant has entered into an lease agreement with Back Office IT Solutions Private Limited (lessee) to provide the property on lease (demised premises) for commercial purposes. In accordance with the lease deed issued by the Jaipur Development Authority, the land use of the demised premises is residential in nature, however, as per Lease Agreement the Demised Premises shall be used solely for commercial purposes by the Lessee i.e. for establishing the branch/office of the Lessee. Construction of property is done for use as commercial purposes only.
The Advance Rulings has been sought on the question as to whether the Demised premised will be covered in definition of residential dwelling for the purpose of notification No. 05/2022-Central Tax (Rate) dated 13/07/2022.
The AAR observed that the Demised Premises, even though designated as residential by local authorities, was used for commercial purposes as per the lease agreement. The said supply of service i.e. renting for commercial use is covered under 997212 and taxable @ 18% and the Applicant i.e. lessor is supposed to pay GST as mentioned above on forward charge basis. The lessee is not required to pay GST under RCM basis in term of Notification No. 05/2022-Central Tax (Rate) dated 18.07.2022
The AAR referred to the Andhra Pradesh AAR rulings in the case of M/s Aluri Krishna Prasad dated 19.12.2022, wherein it was ruled that the the premises in question was not built as a residential dwelling nor to be used for residence by the tenant of the building (lessee) but only to be used for furtherance of business of the lessee i.e. running hostel accommodation for students, executives etc.
The AAR emphasised that the definition of a residential dwelling was not explicitly provided in the GST law. However, factors such as the purpose for which the dwelling is used and the length of stay intended by the users were deemed crucial.
