Clarification on renting of residential dwelling

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.

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.