GST must be paid by the lessor on rent if the property is utilized for business.

MUMBAI: The Authority for Advance Rulings’ Rajasthan bench has ruled that if a lessee (who is registered for GST purposes) uses a residential property for business activities, then GST (Goods and Services Tax) is imposed on the rent.

In the instance of Deepak Jain, the petitioner, who rented out his property to a private limited company that operated a back office, the AAR noted that, until July 17, 2022, residential dwelling rentals for residential use were GST-free, whereas rentals for commercial use were subject to an 18% tax.

But starting on July 18, 2022, there will be changes to the taxability of renting residential property. Services provided by renting a residential dwelling used as a habitation will be subject to the reverse charge mechanism if they are rented to a registered person.

In this instance, the Jaipur Development Authority’s lease deal specified that the property would be used for residential purposes.

But Jain and the private company signed a contract stating that the property may only be used for business purposes. The AAR states that, even in cases where municipal authorities may classify a property as residential, the primary business use will ultimately determine the amount of GST that must be paid.

Commercial rentals are subject to an 18% tax and forward charge basis GST for the applicant.

In response to the particular queries that prompted the request for an early ruling, the AAR determined that because of its commercial use, the property will not fall under the category of a residential dwelling under the terms of the July 13, 2022 announcement. The nature of the property is also determined by how users use it and how long they stay there.