The Rajasthan bench of the Authority for Advance Rulings ( AAR ) has established the applicability of Goods and Services Tax ( GST ) on the rent of a residential property when it is utilised for commercial purposes by a lessee registered for GST. The ruling arose in the case of Deepak Jain, who leased his property to a private limited company engaged in back-office operations.
The AAR highlighted the pre-existing tax landscape until July 17, 2022, where GST exemption covered the renting of residential dwellings for residential use. Conversely, renting for commercial purposes attracted a tax rate of 18%. Following changes introduced after July 18, 2022, renting residential property for use as a residence became taxable under the reverse charge mechanism when leased to a registered person.
Despite the lease deed issued by the Jaipur Development Authority indicating residential land use, the specific agreement between Jain and the private company explicitly designated the property for exclusive commercial use. The AAR underscored that, notwithstanding any potential residential classification by local authorities, the primary factor determining GST liability is the predominant commercial use. Renting for commercial purposes is now subject to an 18% tax rate, with the obligation for the applicant to pay GST on a forward charge basis.
In response to specific queries seeking advance rulings, the AAR clarified that, as per the notification dated July 13, 2022, the premises would not qualify as a residential dwelling due to its commercial use. The nature of the property, in the eyes of GST, is intricately linked to the actual use and duration of stay by the occupants, emphasising the evolving intricacies in tax implications based on property utilisation.
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