The Maharashtra Tax Practitioner’s Association (MTPA) has requested Union finance minister Smt. Nirmala Sitharaman to clarify levy of Reverse charge Mechanism (RCM) on Renting Residential Dwelling to avoid ambiguity and hardship faced by the taxpayer and also to avoid unnecessary litigation and ensure proper compliance of the law.
The Government has levied RCM on Renting of Residential Dwelling under Notification No. 05/2022 – CT Rate dated 13th July 2022.The meaning of the term ‘Residential Dwelling’ is not defined anywhere in GST. The said term is explained by Para 4.13.1 Educational Guide on Service Tax by CBIC which defines Residential Dwelling as – “It is any residential accommodation, but does not include hotel, motel, inn, guest house, campsite, lodge, house boat, or like places meant for a temporary stay.”
It was submitted that the main issue faced by the taxpayers is the meaning of ‘Residential Dwelling’ for the RCM entry. There arise confusion as to the applicability of the entry in case of use of Guest House or flat taken on rent for a short stay of the employee of the company and Residential Property used as Office/ Godown/Warehouse.
The MTPA submitted that the second issue is the applicability and discharge of GST liability in the case of rented property in another state, where the registered taxpayer is not registered. The Third issue pointed out is whether the Input Tax Credit of RCM liability on Residential Dwellings is allowed or not.
If RCM is applicable in the case of Residential Property used as office/Godown/Warehouse, then its ITC will definitely be allowed, as it is used for business purposes. However, Confusion is because, Sec16 allows all ITC used for business purpose, whereas Sec 17(5) restrict ITC for personal usage. Therefore, there is a strong need to issue a clarification on ITC on RCM paid on Residential Properties used as Guest House, flats taken on Rent for a temporary stay of Employee,andflats taken on Rent for permanent stay of Employee.When employees stay in the hotel for a business visit, its ITC was allowed in general practice. Therefore, on the same logic suitable clarification should be issued about the eligibility of ITC.
Because of all the aforementioned issues, the association requested to kindly issue suitable clarification in this regard, on an urgent basis to avoid unnecessary litigation and to ensure proper compliance with the law.
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