The Case of Residential Rentals for Students and Working Women in Karnataka: AAR Karnataka
Questions and Clarifications by AAR:
A. Whether renting residential dwellings along with amenities is exempt under entry No.12 of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.
• The AAR concluded that the services provided by the applicant did not qualify for exemption under Entry No. 12.
B. If not exempt, what is the applicable GST rate?
• The exemption is specific to services by way of renting residential dwellings for use as a residence, and the nature of the applicant’s services did not align with this definition. The applicable GST Rate is 12%, as determined by the AAR, falling under SAC 9963.
C. Can the applicant claim Input Tax Credit (ITC) on inputs used for providing taxable services?
• The AAR clarified that the applicant could claim ITC on inputs used for providing taxable services, subject to fulfilling the conditions stipulated under Sections 16 & 17 of the CGST Act 2017 and the corresponding rules.
Fact of the Case:
In re Deeksha Sanjay (GST AAR Karnataka), the Authority for Advance Ruling (AAR) in Karnataka addressed the GST implications of renting residential dwellings to students and working women, including various amenities and facilities.
They provided residential accommodation to students and working women, offering amenities such as food, furniture, appliances, cleaning, security, pest control, etc., on a monthly rental basis.
The applicant provides the following three types of renting services on a monthly rental basis according to the convenience of the students/women:
a) Single Occupancy: A unit in a residential dwelling containing a single bed in a room for one person, with facilities of electricity, food, furnishing, fan, lighting, etc.
b) Double Occupancy: A unit in a residential dwelling with two beds in a room for two persons, including facilities of electricity, food, furnishing, fan, lighting, etc. This option is often chosen by friends/relatives familiar with each other. If empty units are available, residents can opt from dual to single occupancy.
c) Triple Occupancy: A unit in a residential dwelling with three beds in a room for three persons, equipped with facilities of electricity, food, furnishing, fan, lighting, etc. This option is typically chosen by students who wish to study in a group.
'Residential Service Agreement' includes a cot with a mattress, a table with a chair, a cupboard with a locking facility, one light and one fan per room, an attached bathroom, breakfast, lunch, dinner, evening tea/snacks, laundry, power backup, housekeeping, security, and RO drinking water.
Applicant’s Contention:
The applicant submits that the following essential elements should exist for claiming exemption under the said entry:
(a) The building which is rented should be residential.
(b) Renting of the residential dwelling should be for residence use.
(c) The recipient should be other than a registered person.
(d) Exemption is not applicable if the residential dwelling is used for commercial purposes.
The applicant submits that the expressions ‘residential’, ‘dwelling’, and ‘use as residence’ are not defined under GST law. In the absence of such a definition, it is accepted that the meaning can be understood generally/commonly in layman’s language or by dictionary meaning. “Residential” means a place designed to live.
Findings and Discussion:
• The AAR pointed out that the applicant’s accommodation arrangement, where units are shared, individual charges are applied per bed, and cooking is not allowed, resembled shared accommodation in a paid guest house or hostel rather than a residential dwelling.
• The applicant is engaged in the business of renting immovable property, claiming it as a residential dwelling. The building is deemed suitable for residential purposes based on its layout, structure, design, and local authority approvals for residential use. The applicant, as the property owner, pays property tax to the BBMP and offers three types of renting services for single, double, and triple occupancy on a monthly rental basis, including various facilities.
• The applicant charges monthly rent based on the type of occupancy chosen by the inhabitants.
• Renting services of residential dwellings for use as a residence are exempted from GST. However, services provided by hotels, inns, guest houses, clubs, or campsites, etc., for residential or lodging purposes are liable to GST when the supply is below one thousand rupees, effective from 18.07.2022.
• The term ‘residential dwelling’ is interpreted in normal trade parlance as a residential accommodation but excludes hotels, motels, inns, guest houses, campsites, lodges, houseboats, or similar places meant for temporary stay. A residential accommodation qualifying for permanent stay typically includes at least one room for exclusive use, a kitchen or facility to cook, and essentials like electricity and water provided through metered/sub-metered connections or charged based on actual usage.
• From the Residential Service Agreement samples, the terms “Rent” and “Unit” are defined by the applicant as follows: Rent refers to monthly charges payable for a unit of residential accommodation, including maintenance fees, reimbursement of electricity, other common area charges, and any additional fees charged to the resident.
• The applicant charges each inhabitant of a room individually, not for the room as a whole. This suggests that the accommodation provided is not a residential dwelling but a cot/unit in a room. Unrelated people sharing a room and invoices raised per bed on a monthly basis are not characteristics of a residential dwelling.
• In this case, the applicant provides accommodation services consisting of rooms or units, without kitchens and with daily housekeeping services, on a single or multi-occupancy basis, thus meriting classification under SAC 996311. The applicant is akin to establishments like hotels, inns, guest houses, clubs, and similar establishments.
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