In its ruling, the AAR held that GST exemption is provided by the nature of the property and its usage and not by the status of the recipient.
The ruling was made after M/S Kasturi and Sons Ltd approached the AAR that the Jurisdictional officer had ruled that giving properties on rent to
would not be residential in nature since, “LIC is not a natural person and LIC is profit making company. So, in order to increase profit, the facility of accommodation is given to employees, which is for commercial use and not for residential use.”
Kasturi and Sons maintained that the properties were residential apartments and it proposed to let out on Leave and License basis to LIC of India specifically for the residential purpose of their staff members on fixed rentals / license fee basis.
Kasturi and Sons approached the AAR to know if they would be eligible for the exemption from payment of GST on the monthly license fee to be received by them on the proposed letting out on Leave and License Basis of their residential building.
In its ruling, the AAR held that GST exemption is provided by the nature of the property and its usage and not by the status of the recipient. Only if a residential property was either used or let out for commercial purposes then it would be classified as a service provided and attract GST whereas, property let out for residential purposes will be exempt from the GST ambit, said the AAR.
The GST applicability is not decided by the nature of the property but by the purpose for which it is used i.e. it is not the nature of the property, but the nature of the end use that will determine whether it is a commercial rent or residential rent, it added.
The AAR held that Kasturi and Sons would be eligible for the exemption from payment of GST on the monthly license fee to be received on the proposed letting out on Leave and License basis of their residential building.
“The ruling has rightly looked at the substance and end use of the transaction, instead of the nature of earning or the recipient. Even if the landlord uses the flat to earn his living, so long as the flat is being used for residential purpose, rent should not be taxable, “said Harpreet Singh, Partner, KPMG in India.
The AAR also ruled that the jurisdictional officer defied all logic when he stated that the LIC staff to whom the flat is let out can sit late in office and work more, which again formed a basis to treat the leasing of flats as commercial in nature.