GST on Accommodation Services Withdrawal of Exemptions & Reverse Charge

Vide Notification No. 04/2022-CT (Rate) dt. 13.07.2022 the exemption hitherto available in respect of the accommodation services by a hotel, inn, guest house, club or campsite, having the value of supply below or equal to Rs. 1,000/unit/day has been omitted. Hence the said services shall be taxable w.e.f. 18.07.2022

Further, vide Notification No. 03/2022-CT (Rate) dt. 13.07.2022 the aforesaid accommodation services having the value of supply not more than Rs. 7,500/unit/day shall be taxable @ 12%.

Renting of residential dwelling

Vide Notification No. 04/2022-CT (Rate) dt. 13.07.2022 the exemption hitherto available in respect of the services by way of renting of residential dwelling for use as residence irrespective of the status of the recipient (i.e. registered or not) shall not be available w.e.f. 18.07.2022 if the residential dwelling is rented to a registered person.

Further, vide Notification No. 05/2022-CT (Rate) dt. 13.07.2022 the tax on the said service by way of renting of residential dwelling to a registered person shall be payable under the reverse charge mechanism (RCM) by the registered person (the recipient of the supply). The position w.e.f. 18.07.2022 can be summarised as under:

The following issues may kindly be noted:

1. What shall be the applicable rate of tax? It may be noted that the rate of 12% (where the value of supply is not more than Rs. 7,500/unit/day) is applicable in respect of the “Hotel accommodation” and the said expression has been defined under Explanation 4(xxxiv) of NN 11/2017-CT (Rate). It appears that the said Explanation will not include the supply of residential dwellings for use as a residence. Will it thus imply that it shall attract the GST @ 18%?

2. It may be noted that Sr. No. 7 of the rate notification covers all types of accommodation, food and beverage services falling under heading 9963. SAC 996329 includes other room or unit accommodation services nowhere else classified. Hence even the renting of residential dwellings will fall under the heading 9963. Also, the residual entry in the said Sr. No. 7 (i.e. 7(vi)) covers all residual accommodation, food and beverage services other than the specified list. However, the Explanation to the said Sr. No. 7(vi) indicates that it covers “hotel accommodation” having the value of supply exceeding Rs. 7,500/unit/day. Hence on one hand it appears that the services by way of renting of residential dwelling can fall under the said Sr. No. 7(vi) but the Explanation to the said Sr. No. 7(vi) seeks to cover ‘hotel accommodation’ where the value of supply exceeds Rs. 7,500/unit/day. It may also be noted that the residual entry (at Sr. No. 35) that includes other services nowhere else classified and hence falling under SAC 999799 cannot be applied to the present situation since the services in question are indeed covered under SAC 996329. The entries in the rate Notification can apply only if the supply in question matches the SAC as well as the description. Further it is a cardinal rule of interpretation that the classification under a residual entry shall be the last report. Hence we suggest that the Government must consider an amendment in NN 11/2017-CT (Rate) to provide a separate rate (preferably 12%) for the services in question.

2. Whether a proprietor registered under GST and renting a residential unit for his personal use as a residence will be liable to pay the tax under RCM? It may be noted that the exemption is denied when the residential dwelling is rented to a registered person. However, it may be noted that the liability to pay the tax under RCM in the present context emanates from Sec. 9(3) of the CGST Act, 2017 which seeks to apply all the provisions of the Act to the ‘recipient’ where such recipient is made liable to pay the tax. Sec. 9(1) of the said Act provides for the levy of tax on the ‘supply’ which has been defined u/s 7 of the said Act to cover transactions incurred in the course or furtherance of business. Hence a view can be taken that a proprietor taking a residential dwelling on rent for his own use is not the recipient (since it is not for the purpose of business) and hence shall not be liable to pay the tax under RCM. The said view also supports the intent of the GST Council. The press release after the 47 th meeting clearly suggests that the exemption is withdrawn only in respect of the renting of a residential dwelling to business entities (registered persons). Hence only inward supplies of the said registered persons (in the capacity of a business entity) can be liable to tax.

3. Whether the tax shall be payable if the employee takes the residential dwelling on rent and seeks reimbursement of the cost from the employer? The term ‘recipient’ who has been made liable to pay the GST under RCM has been defined to mean the person who is liable to pay the consideration. Hence if the employee has taken the residential dwelling on rent, then such employee shall be the ‘recipient’ and being unregistered shall not be liable to pay the GST. Reimbursement also may not attract tax as it is merely a transaction in money.

4. Whether the transactions in the nature of providing long-term accommodation to students (such as PGs, etc.) shall be liable to tax? One has to consider whether the supplies in question qualify as ‘hotel accommodation’ or not since the definition of the said expression includes supply, by way of accommodation in ‘hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes’. The term ‘other commercial places’ has to be interpreted applying the principle of noscitur asociis and hence can be said to include such places that provide short-term accommodation (similar to hotels, guest houses, etc.). Hence it cannot cover long-term accommodation. Further, even after the amendment, the services in terms of a residential dwelling provided to unregistered persons continue to be exempt. Hence in our view, such long-term accommodations of residential dwellings to unregistered persons can be eligible for the exemption.

In the end, we suggest that the GST Council/Government can consider further amendments or clarifications to address the aforementioned issues.