Page 35 - GSTL_30th April 2020_Vol 35_Part 5

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Subletting, leasing under GST ambit — Karnataka AAR
Ruling

The Authority for Advance Rulings (AAR), Karnataka has ruled that
GST is applicable on residential accommodation sublet by a tenant, a ruling that
experts said could open a Pandora’s box of litigations.
In a case involving about 42 single rooms having been sublet by a tenant
to students for periods ranging between three months to 11 months, AAR noted
that the property given out for sub-renting matched that of a hotel - rooms with
attached bathrooms - “which can by no imagination be termed as residential
dwelling”, or a house.
While renting of accommodation is exempted from the Goods and Ser-
vices Tax (GST), the authority has ruled, “The exemption prescribed cannot be
sought and the lessors have to charge GST while issuing invoice for the lease ser-
vices.”
It said, “The applicant is not providing the service of leasing in individu-
al capacity to the company but as a part of the group of lessors... It is seen from
the agreement that lessors are providing the service of leasing or renting of im-
movable property for a consideration.”
The AAR order dated March 23 is likely to trigger a number of litiga-
tions, experts said.
“With this ruling, lessors may not have the comfort of presuming GST to
be exempt, where end use of the property is residential,” said Harpreet Singh,
Partner at KPMG India. “One would need to ascertain whether the leased prop-
erty qualifies as a ‘residential dwelling’ to claim the exemption benefit.”
On the basis of the ruling, Tax Authorities could well begin demanding
18% GST applicable on renting out commercial property from landowners leas-
ing residential hostel-style accommodations to schools, colleges, educational in-
stitutions, offices, corporates, or any other establishment, experts said.
“Though ruling has some basic logic to it, still it is expected to open a
Pandora’s box of litigation for numerous individuals earning passive income,”
said Rajat Mohan, Senior Partner at AMRG Associates.
[Source : The Economic Times, New Delhi, dated 25-4-2020]

GST LAW TIMES  30th April 2020  35