Co-Owner need not obtain GST Registration If his Individual Turnover does not exceed 20 Lakhs: AAR [Read Order]

The Authority for Advance Ruling (AAR), Kerala has ruled that the threshold limit for obtaining GST registration under section 22 of the Central Goods and Services Tax (CGST) Act is applicable to the co-owners separately in the case of jointly owned property, where the rent is collected together, but divided equally and transfered to the respective co-owner.

The authority also clarified that engaging a co-owner to collect and distribute rent among all the owners for administrative convenience has no implication on the business exemption under Section 22 of the GST Act for individual co-owners.

In the instant case, the applicant, a co-owner among the other 13 other co-owners of a property, approached the AAR seeking an opinion on his tax liability. The property was let out to different parties. Though the total rent from all these properties exceed twenty lakh rupees in a financial year, individual share is not exceeding the said threshold.

The applicant contended that under GST scenario ‘renting of immovable property’ is defined as supply of service attracting 18% GST. But, as per Section 22 of the GST Act, a supplier is exempted from registration, if his aggregate turnover is not exceeding Rs. 20 Lakhs in a financial year. It was contended that in case of individuals, each individual will be entitled to basic exemption up to threshold limit. In this case also, a co-owner is engaged to collect rent from tenants and distribute among others just for administrative convenience, but the share of each owner is definite and ascertainable.

The authority noted that the rent collected from joint property is equally distributed among the co-owners. Each co-owner received a rent income of below Rs.20 Lakhs, which is below the threshold limit under GST.

“By mere joining of hands of two or more persons, a different and distinct legal entity or legal personality does not come into existence, unless there is an intention to do so. It is settled law under Section 26 of the IT Act that where the property, consisting of buildings and land appurtenant, is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each such person in the income from the property is included in his total income,” the authority said.

“A co-owner holding immovable property jointly with other co-owners,but receiving lease rent separately, in proportion to his share in the property, is eligible for the benefit of threshold exemption,” the authority said.

It was therefore, held that “The co-owners jointly owned immovable property and rented out these properties to different parties. Co-ownership of the property is for financial, administrative and family reasons. The rent is collected from all the parties together and divided equally and transfered to the bank account of each co-owner. If the individual receipts of a co-owner from all his business, including `renting of immovable property’, exceeds Rs.20 Lakhs in a financial year, the respective person has liability to register under GST Act.”