GST on Renting of Residential Dwelling by a Proprietor

Shubhangi Jain

23 May, 2024

The GST Act was implemented in 2017, providing all the cases wherein the GST shall be applicable. However, even after providing such clarification, there are certain cases wherein the applicability of GST is not clear yet, such as in the case of renting residential accommodation for personal use.

The applicability of GST on the Renting of Residential Dwelling by a Registered Proprietor in his personal capacity with special reference to the case of Seema Gupta Vs Union of India is discussed in this article to provide insights about the judgement pronounced on 27. 09.22. by the High Court of Delhi.

Background of the Case

The writ petition was filed against section Clause (A)(b) of Notification No 04/2022-Central Tax (Rate) dated 13.07.22 and the same is ultra vires to Article 14 of the Constitution of India along with being beyond the powers under the GST Act 2017.

Issue Raised in the Case

The main issue raised in this case was whether renting of residential dwelling by a registered proprietor in a personal capacity is exempted under GST.

Respondent’s Arguments

It was stated that through the impugned notification, the exemption granted by the previous notification No 12/2017-Central Tax (Rate) dated 28.07,22 in respect of renting accommodation isn’t available to tenants registered under GST any longer, and the said amendment is affecting the proprietors engaged in the business of proprietary concerns as the petitioner in the present case and the denial of the exemption solely on the basis of the person being registered under GST cannot be understood as the same does not have any rational relation to the object which is sought to be achieved.

Respondents no.1, 3 4,5 of the case filed an affidavit on 30th August 2022 stating the following-

• It was observed by the Group of Ministers (GoM) that renting dwelling to businesses would result in the imposition of GST; however, the exemption of GST for renting dwelling to non-businesses shall continue, but there was an absence of any justification regarding the exemption of GST in case of the residential dwelling being supplied to the business, i.e. a registered person.
• It is clear that if the residential dwelling is rented by a proprietor of a proprietary firm for the purpose of personal use and not accounted for in the firm’s account but in the personal account, the exemption under GST shall be granted in such case, and the same shall apply on a partner of a partnership firm or any other form of businesses renting a dwelling for personal use.
• After this, the respondents no. 3, 4 and 5 took some time for filing a clarificatory /supplementary affidavit.
• The Ld. Counsel of respondents 3,4 and 5 filed the supplementary affidavit on the last day of the hearing; however, he requested some extra time for filing a better affidavit, and finally, the affidavit dated 23.09.22 was taken on record.

The following submissions were made for the consideration of the Hon’ble Court.

• The government is bound to either tax or exempt any goods or services as per the recommendations provided by the GST Council.
• Keeping this in mind, a proposal for the amendment of the Notification No.04/2022 – Central Tax (Rate) was being planned to be placed before the council for the purpose of bringing better clarity on the matter of the taxability of registered person as the notification dated 13th July 2022 is unable to specify the imposition of GST only where registered person has rented (taken on rent) a dwelling for business or during the course of business.
• However, for the current case, clarity is required on the matter of renting residential property by the proprietor of a registered proprietary firm renting the dwelling for his personal use as its own residence rather than for the purpose of his business and whether the same shall be exempted under GST as per the notification No.04/2022-Central Tax (Rate) dated 13-7-2022
• The Ld Counsel for Respondent No.2 pleads that the resp. must be bound to such clarification as well.

Judgement

The Hon’ble Court accepted the clarification that renting a residential dwelling for a proprietor of a proprietary firm for his personal use as a residence and not for the purpose of the business of his proprietary firm shall be exempted from GST, and the same shall be binding on all the respondents of the case.

Conclusion

The judgement pronounced in the discussed case regarding renting of residential dwelling for personal use is expected to provide much-needed clarification to the proprietors registered under GST as well as the partners of a partnership firm who rent an immovable property for their personal use.

Read Our Article: Applicability of GST on Immovable Property including TDR