The Owner is Liable to Pay the GST on a Forward Charge Basis When the Property is Rented for Commercial Purposes

In the case of In Re: M/s. Deepak Jain- 2023 (12) TMI 150, the Authority for Advance Ruling (AAR), Rajasthan, stated that when a residential property is rented out for commercial purposes, the Lessor is responsible for paying GST on a forward charge basis.

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Here Are the Key Facts Related to the Case:

The applicant, M/s. Deepak Jain, a practicing Chartered Accountant but not registered under the GST Act. The person applying, along with other family members, possesses a property in Jaipur.

Although the premises have a residential land use designation according to the lease deed issued by the Jaipur Development Authority to the applicant who is registered under the GST Act, the lease agreement with Back Office IT Solution Pvt. Ltd. states that the premises will be used exclusively for commercial purposes.

The Matter:

The matter under consideration is whether the property owner, in this particular situation, is obligated to pay GST in advance when renting out a residential property for commercial purposes.

The AAR, Rajasthan, made the Following Rulings:

• After considering the facts, the central legal question is whether the premises fall within the definition of a residential dwelling as per Notification No. 05/2022- Central Tax (Rate) dated July 13, 2022.
• Although the Authority has not changed the nature of the premises, it cannot be considered residential since it is being used for commercial purposes.
• Renting the premises for commercial use (the supply of service) falls under SAC 997212 and is taxable at a rate of 18%.
• The Lessor is required to pay GST at the mentioned rate on a forward charge basis. The applicant is not obligated to pay GST under the Reverse Charge Mechanism according to the Notification terms.
• The authority ruled that the premises do not qualify as a residential dwelling as per the Notification.
• The nature of the premises, whether residential or not, depends on the purpose for which it is being used and the intended users’ length of stay.