The Authority for Advance Rulings ( AAR ), Maharashtra has held that the Goods and Services Tax ( GST ) cannot be levied on the interest-free security deposit, given for leasing a commercial property.
However, if at the time of completion of lease tenure, the entire deposit or a part of it is withheld and not paid, as a charge against damages etc., then such amount withheld will be liable to GST as per the present GST laws, the AAR order said.
The applicant, E-Square Leisure Private Ltd, had approached the AAR seeking clarifications on whether GST will be applicable on interest-free security deposit and notional interest if any, and in case GST is applicable, what will be the value of notional interest for the levy.
The company is engaged in providing various services, including renting of immovable property for commercial purposes. The applicant is discharging GST on the rent received in relation to such commercial properties.
According to the applicant, no GST is applicable on the amount collected as interest-free security deposit. It argued that the definition of consideration given under the CGST Act specifically excludes any deposits, unless the same is applied as consideration for the supply. The security deposits taken from the occupant does not influence the rent payable for the commercial properties. The security deposits are only taken to safeguard the interests of the lessor.
Granting relief to the applicant, the authority observed that the definition of supply requires presence of consideration as an element for any of the defined transactions to be exigible to tax. Further, the definition of consideration given under the CGST Act, 2017 requires a direct link between the payment and supply. Deposits will only classify as consideration where the supplier appropriates such deposit as consideration for the said supply.
It also laid four parameters for a payment to qualify as ‘security deposit’ — for performance of an obligation, security against return of hired goods, security against damage to properties rented and it should be reasonable. It was further held that these parameters apply in the present case, so it ruled that security deposit taken by the applicant cannot be treated as consideration for supply and they are not liable to pay any GST on the same.
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