According to GST Law, “services by way of renting of residential dwelling for use as a residence” is exempted from GST. On the other hand, renting properties for commercial purposes attract a GST levy. Now the question is that what would be the tax treatment if the residential property is given to a body corporate for use as such by its employees? Would it mean to be renting property for commercial purposes?
In our view, the exemption of GST doesn’t mention to whom the said services are supplied. The intention to use property should be the main element of the GST levy. For instance, residential property used/intended to be used for carrying out commercial activities would attract GST Levy. The exemption is quo supply of service and not quo recipient of the supply. Therefore, renting a residential dwelling to a body corporate for use as a residence by its employees, should not attract a GST levy. To avoid litigations, it is advisable that entities must draft their lease agreements carefully and, if required, include a clause restricting property use for commercial purposes.
A similar case that came before Authority for Advance Ruling Maharashtra had been decided in favor of the applicant. Moreover, we appreciate how the AAR had addressed a contrary view of the Jurisdiction officer (who attended the hearing). The jurisdiction officer was of the view that the entity was commercially motivated and to increase profits, they made people sit late nights in the office for which they have been offered a place for residence. AAR set asides Jurisdictional officer contention stating it to be illogical.
Source: Authority for Advance Ruling Maharashtra in case of M/S. KASTURI & SONS LTD, application no. 67 dated 31.05.2022
