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Introduction: Sl. No.66 of exemption notification No.12/2017-Central Tax (rate) dated 28.06.2017 provides an exemption in case of renting of a residential dwelling to be used as a residence. Prima facie, it appears that only a residential dwelling which is used as a residence is exempted. However, the scope of this entry is not limited. It requires understanding and interpretation of many words like 'residential dwelling', 'use as a residence'. These words are not explained in the said notification and are very important in order to understand the scope of this exemption entry. Further, we would also try to understand the applicability of this exemption through certain scenarios.   

Discussion on the exemption:

Sl. No. 12 of notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended from time to time, provides the following exemption:

'Services by way of renting of residential dwelling for use as a residence'

The above exemption would apply only if a residential dwelling is given on rent for use as a residence. However, it is to be noted that the exemption entry would be applicable only w.r.t. a residential dwelling. Thereby, if the said premise is not a residential dwelling, then irrespective of the fact of its usage as a residence, the exemption would not be applicable. Thus, it is important to understand and interpret the meaning of each of these words.

The term ‘residential dwelling' is not defined in Central Goods and Services Tax Act, 2017(hereinafter referred to as Act). So, the dictionary meaning of the same is referred to, which is as follows:

  • As per Black's Law Dictionary: 'Residential dwelling means living in a certain place permanently or for a considerable length of time'
  • As per Merriam Webster dictionary: 'A shelter (as a house) in which people live'
  • As per the Oxford dictionary: 'A house or apartment or other places of residence or a place to live in or building or other places to live in'.

On analyzing the meaning of residential dwelling from various dictionaries, it can be understood to mean a place which is taken to live in permanently or for a certain period of time.

Now, it is important to understand what residence means. The meaning of the term ‘residence' is as follows:

  • As per Black's Law Dictionary: 'Fixed and permanent abode or dwelling-place for the time being, as contradistinguished from a mere temporary locality of existence'.
  • As per Merriam Webster dictionary: 'The act or fact of living or regularly staying at or in some place for the discharge of a duty or the enjoyment of a benefit'.
  • As per the Cambridge dictionary: 'To go to live somewhere'.

Thus, residence means a place which is taken for staying regularly by the people but would not include any temporary accommodation.  

On analyzing the exemption entry in line with the above dictionary meanings, it appears that residential dwelling could be said to be used as a residence if the accommodation is rented for use as a living space and for a considerable period of time.

 Similar entry existed under clause (m) of section 66D of the Finance Act, 1994 but the terms such as ‘residential dwelling', ‘use as a residence' were not defined in the aforesaid section. Hence, the reference has been given to dictionary meanings.

Further, in the above definitions, the term 'certain period of time' is commonly being used. Thus, it is required to understand what does this term mean? Does it mean for a fortnight or a month or a year or for a certain number of years?

'Certain/considerable period of stay' is neither defined under GST nor in the Finance Act, 1994. However, section 65(105) (zzzzw) of the Finance Act 1994 (prior to 2012), provides the definition of taxable service for services provided by hotels, inns, etc, which generally involves stay for shorter period as compared to permanent or considerable time of stay, provided that the said service is providing accommodation for a continuous period of less than 3 months.

In connection to this in the Education Guide for Services relating to Jun '12 stated in para 4.13.3 that a hotel is not a residential dwelling. From these, an inference can be drawn that less than 3 months can be considered as a period of temporary stay. Though service tax is not binding under GST, the above para is only for reference to bring out a reasonable conclusion of what can be a considerable amount of time to stay.

Therefore, it can be fairly concluded that if the residential property is used as a residence for a minimum period of 3 months then the aforesaid exemption could be applicable. Further, this could be judicially tested, so assessee can consider intimating department in borderline cases.

Let us examine the applicability of the aforesaid exemption in the following scenarios:

Scenario (i): Whether the exemption will be applicable if a house given on rent is used as a hotel or a lodge?

Answer: The house is a residential dwelling. Hence, it satisfies the first part of the exemption entry. Let us check whether it is used as a residence or not. In the instant case, the house is used as a hotel or lodge, where the people stay for few days for a business meeting/vacation not with an intention of regular staying (i.e. for a temporary period) and not for a considerable length of time i.e., 3 months. Therefore, such transaction will not be covered under the aforesaid exemption entry and thereby taxable. Further, for these cases, another exemption is available as per sl.No. 14 of notification No.12/2017- Central Tax (Rate) dated 28.06.2017, if the declared tariff of a room is less than   Rs.1000/-. However, w.e.f. 27.07.2018 as per notification No.14/2018-Central Tax (Rate) dated 26.07.2018, declared tariff is replaced with the value of supply.

Scenario (ii): Whether the exemption will be applicable if furnished flats are given on rent for a period

  1. less than 3 months.
  2. more than 3 months.


  1. Renting of furnished flats for use of a person or his family for the reasonable period shall be residential use but as the same is given for a short stay (i.e. < 3months) thereby the supply would be liable to tax.
  2. If the furnished flats are given on rent for a period more than 3 months then the exemption would be applicable as it would satisfy the condition of living for a certain period of time (i.e. 3 months). However, the same would be exempt if the room charges are less than Rs.1000/-

Scenario (iii): Whether the exemption will be applicable if the building is given on lease to an educational institution for use as a hostel?

Answer: Yes, the said exemption would be applicable if the building is given on lease to an educational institution for use as a hostel because, a student who enrols in a course in any educational institution would be staying in the hostel for the time until his/her course gets completed, which would generally be more than 3 months. Therefore, the conditions associated with the renting of residential dwelling would be satisfied as the same would be used as a residence (though not by the institution in the literal sense but by its students).  

Scenario (iv): A company has entered into a single lease agreement in a residential building, where 1st floor of the building will be used for commercial purpose and 2nd floor will be used for residential purpose. Will the aforesaid exemption be applicable in this case?


  • In the given scenario, the company has entered into a single agreement towards the leasing of a residential building for both residential and commercial purpose. Leasing of such building would be treated as mixed supply (as the same is not a composite supply), where the highest rate of tax applicable to one of the two supplies, will apply.
  • In the instant case, w.r.t 1st floor, the rate applicable would be 18% towards leasing of commercial complex and for 2nd floor, the exemption entry specified above would apply. However, the above exemption relating to the residential dwelling will not be applicable in this case and the said supply would be taxable under GST as mixed supply @ 18%.

Thus, from the above discussion, it can be said that exemption will be available only when the rented premises is a residential one and is used as a residence for a certain period of time.

By: CA Monika Motta and Hema Muralidharan

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Monika Motta
Category GST   Report

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