HomeLegal AdviceLessor is Liable to Pay GST on Forward Charge Basis When the...

Lessor is Liable to Pay GST on Forward Charge Basis When the Residential Property is Rented Out for Commercial Purpose

In a recent ruling by the AAR, Rajasthan, the GST liability for lessors of residential properties used for commercial purposes has been clarified. The case of M/s. Deepak Jain highlights the obligation of the lessor to pay GST on a forward charge basis in such scenarios.


M/s. Deepak Jain, a practising Chartered Accountant, owns a residential property in Jaipur. Leasing it to Back Office IT Solution Pvt. Ltd. for commercial use, the lessor faced the crucial question of whether GST is applicable on a forward charge basis.


The primary issue addressed was whether the lessor is liable to pay GST on a forward charge basis when a residential property is rented out for commercial purposes.


The AAR, Rajasthan, in Advance Ruling No. RAJ/AAR/2023-24/14, concluded that:

  • The premises, though designated residential by the Authority, is considered non-residential due to its commercial use.
  • Renting for commercial use falls under SAC 997212, attracting an 18% tax rate.
  • The lessor is obligated to pay GST at the specified rate on a forward charge basis.
  • The lessor is exempt from Reverse Charge Mechanism, as per the terms of the Notification.
  • The determination of whether the premises is residential hinges on its purpose of use and the intended users’ length of stay.

This ruling emphasises the need for lessors to be aware of their GST liabilities when leasing residential properties for commercial purposes. The AAR’s decision provides clarity on the taxation of such transactions, ensuring compliance with the law and avoiding potential disputes.

Monika Shanmugam