by THO
The Goods and Services Tax (GST) Council at its 54th meeting in New Delhi on September 9 decided to bring renting of commercial property by an unregistered person to a registered person under Reverse Charge Mechanism (RCM), in order to prevent revenue leakage.
The meeting decided that commercial property will now come under the reverse charge mechanism. Under the RCM, the liability to pay GST will now shift from the supplier, that is the landlord, to the recipient or the tenant of the commercial rental services.
“Renting of commercial properties brought under reverse charge mechanism,” said revenue secretary Sanjay Malhotra.
The 54th meeting of the Goods and Services Tax Council chaired by finance minister Nirmala Sitharaman concluded in New Delhi today. The meeting was attended by key officials from the finance ministry, along with finance ministers from various states.
“The decision to bring renting of commercial property from unregistered supplier under reverse charge will increase compliances for registered taxpayers as this would require determination of GST liability on all their place of business under lease,” said Harpreet Singh, Partner, Deloitte India.
Clarifies on tax treatment of preferential location charges
The GST Council also clarified on the tax treatment of preferential location charges stating that the PLC paid along with the price for property construction forms a part of the same supply, ie, construction services and hence should be liable at the same rate at which construction services are taxed.
“To clarify that location charges or Preferential Location Charges (PLC) paid along with the consideration for the construction services of residential/commercial/industrial complex before issuance of completion certificate forms part of composite supply where supply of construction services is the main service and PLC is naturally bundled with it and are eligible for same tax treatment as the main supply that is, construction service,” the government statement said.
Preferential Location charges (PLC) is a charge which the builder takes from the buyer for allocating a preferred/ better location for a particular unit within a complex or building.
“Residential construction is liable to tax @ 5% and commercial construction is liable @ 12%. The issue around taxability of PLC was whether the same is separate and distinct service liable to tax at the standard rate of 18% or is to be treated as part and parcel of construction service liable to respective rates of 5% / 12%. There are favorable rulings under the erstwhile service tax regime which have held that construction and PLC service is to be treated as ‘bundled service’. However, there were few adverse Advance Rulings under the GST regime, which have held that PLC is a separate service liable to tax at the higher rate of 18%. Accordingly, this clarification would finally assuage the concerns of all builders by putting to rest any doubt on taxability of PLC,” added Singh from Deloitte India.
