Intending to make housing affordable to everyone, the government had earmarked "renting of residential dwelling for use as a residence" as an exempt service under the erstwhile regime. While moving to the GST regime, such service was not taxable until recently. W.e.f., 18th July 2022, residential dwellings rented or leased out to registered persons, have been brought under the ambit of GST1.

The authors, through this article, have analyzed the tax position as it existed pre and post amendment, and the impact such amendment would bring to the industry.

Vide the rate Notification 04/20222, exemption on renting of residential dwelling for use as a residence except where it is rented to a registered person has been withdrawn. The corresponding amendment has also been brought vide rate Notification No. 5/20223, by virtue of which services by way of renting of residential dwelling by any person to a registered person has been made exigible to GST under the reverse charge mechanism ("RCM"). Consequently, in case a residential dwelling is rented to a registered person, he would be liable to pay GST under RCM.

With this amendment in place, registered persons like corporates, which have taken the residential property on rent for use as guesthouse or as residence for its employees, would be liable to pay GST under RCM. The definition of 'registered person' is critical to determine who would fall under the ambit of tax. As per Section 2(94) of CGST Act4, "registered person" means a person who is registered under Section 25 thereofbut does not include a person having a Unique Identity Number ("UIN"). Accordingly, a residential unit let out to all persons (registered under Section 25 of the CGST Act) except UIN holders would be liable to GST. UIN holders are specialized agencies of UNO like UNESCO, WHO etc., consulate or foreign embassy of foreign countries, who are not liable to be taxed in India. By virtue of the exclusion from the definition of 'registered person', any residential property taken on lease by such agencies for their employees would not be liable to GST.

The amendment seemingly straightforward, which was spelled out in a single line during the GST Council Meeting held on June 28 and June 29, 2022, has indeed opened a pandora's box of unsettled positions.

Until now, the service of use of the residential dwelling as the residence was exempt. However, when the service of renting residential dwellings has been brought to tax under RCM, it seems that the purpose for which such residential property is let out is no longer relevant. In case the residential property is let out for residential or commercial purposes, the tax would be required to be paid on RCM by the lessee, if he is registered. There are multiple cases, where the leased residential property is used for purposes other than a residence. For instance, there are grocery shops opened in residential units, people use their houses partly for residence and partly for businesses like boutiques or salons, and there are Chartered Accountants, lawyers, etc. who operate from offices in residential colonies. Similar is the case with the property dealers, who use their own houses as their offices as well. In such situations, the end use is not merely residence, but also commercial. In such cases, where end-use is commercial, or a mix of both commercial and residential, it appears now that such residential accommodation would be taxable in the hands of the lessee, if registered. Now where such property was let out for commercial purposes, earlier the same was taxable on a forward charge basis. With the amendment, the perplexity arises as to whether such service would be taxable under RCM given that the property which is leased is residential.

Further, another conundrum that arises now is in a case where the residential unit is rented for use as a residence and not for business purposes by an individual, who is a registered person. There was a lot of confusion as to whether such a registered person, who rents out a property for his personal use as a residence would be liable to pay GST under RCM. To settle the dust, CBIC5 issued a Tweet clarifying that renting of residential unit is taxable only when it is rented to a business entity; no GST is payable when it is rented to a private person for personal use. Further, it has been clarified that no GST is payable even if the proprietor or partner, or firm rents the residence for personal use. Thus, it can be concluded that where an individual (registered under the CGST Act) rents a residential property for his personal use, the same would not be eligible for GST.

Another point of discussion that has taken center stage pursuant to the amendment is the availability of Input Tax Credit ("ITC") of GST paid on rent. There is an apprehension that the department might not allow such ITC on the pretext that the residential property rented by registered persons, say for use as a residence for its employees, is being used for personal consumption of employees and so, is not in furtherance of business. Similarly, where a proprietor has rented a residential unit and uses it partly for its business and partly for its residence, the question arises whether proportionate ITC would be available to the proprietor.

With these Notifications in place, the government has added one more service that was exempt under the taxability umbrella and increased the compliance burden on the taxpayers. The practical application of such an amendment would open various complexities for taxpayers, a few of which have been spelled out above. So, time would tell if the amendment has added to another issue under the GST regime where the settled issue has been unsettled.


1. Vide Notification No. 05/2022-Central Tax(R) dated July 13, 2022

2. Notification No. 04/2022-Central Tax (R) dated July 13, 2022

3. Vide Notification No. 05/2022-Central Tax(R) dated July 13, 2022

4. The Central Goods and Services Act, 2017

5. The Central Board of Indirect Taxes and Customs

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.