Clarification on renting of residential dwelling



Quick Summary
From now on, registered individuals renting residential accommodation must pay GST under the reverse charge mechanism. The key factor is the property's use as a dwelling, meaning a place where one lives and considers home, rather than its location in a commercial or residential zone. This applies even if the dwelling is in a commercial area or if an office/factory is rented in a residential area.

From now on, if a registered person takes residential dwelling on rent then he will have to deposit GST in reverse charge. But at the same time there are many questions that come to mind, such as whether the office or factory etc. rented in residential area will also attract reverse charge or whether the house rented in any commercial area will have to pay GST or not.

For this we need to understand the definition of residential dwelling. However, the definition of residential dwelling is not given in the GST Act. We will try to understand residential dwelling in common language. It means any residential accommodation, but does not include hotel, motel, inn, guest house, campsite, lodge, house boat or like places meant for temporary stay.

Residential Dwelling Rent: Understanding GST Reverse Charge

In case of Collins (AP) V. Uratemp Ventures Limited {2012} 24 taxmann.com 134(ECJ) held that

"Dwelling means a place where one lives, regarding and treating it as home. It is the place where he lives and to which he returns for sleep and which forms the Centre of his existence. Dwelling may be a house or part of a house and even a single room as a part of a house, may be a dwelling. However, the use a person makes of it when living there depends on his mode of life. Such a place does not cease to be "dwelling" merely because one takes all or some of one’s meals out; or brings take away food in to the exclusion of home cooking: or at times prepares some food for consumption on heating devices.

 

From the above interpretation of the court, it can be concluded that, any premises which can be used as residence for stay, can be termed as residential dwelling and which may be for long term.

Conclusion

So it becomes very clear that whether the place is commercial or residential does not matter, what is important is the purpose for which it is being used. That is, if a registered person is using the property for residential purpose even in any commercial area, then he will have to pay GST in reverse charge.

 

For example, if Mr. A sets up his factory in a commercial area and takes a residential house on rent on the same, then he will have to pay GST in reverse charge. Conversely, if Mr. A sets up a factory in a residential area and rents a house to live there, he will have to pay reverse charge.

FAQ :

Registered persons renting residential accommodation must now deposit GST under the reverse charge mechanism.

No, the location (commercial or residential area) does not matter. What is important is the purpose for which the property is being used.

A residential dwelling is any accommodation used as a residence for stay, considered a home, and not a place for temporary stay like hotels or guest houses.

A registered person must pay GST in reverse charge if they are using a property for residential purposes, even if it's in a commercial area, or if they are renting an office/factory in a residential area.

Yes, if a registered person rents a factory in a residential area and uses a house there for residential purposes, they will have to pay GST in reverse charge.


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PRADEEP K SHARMA ASSOCIATESwas established in the year 2011. It is a chartered accountancy firm rendering comprehensive professional services which include audit, management consultancy, tax consultancy (SPECIALISED IN GST) , accounting services, manpower management, secretarial services etc. PRADEEP K SHARMA AS ... Read more


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