Commercial property tenants to pay 18% GST on electricity bills

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Tenants, particularly of commercial properties, will have to pay 18% Goods and Services Tax (GST) on electricity charges if the supply is bundled with renting of immovable property and maintenance of premises, but power billed on an actual basis by real estate owners or malls, acting like an agent of discoms, will not attract any GST, the government clarified.

The Central Board of Indirect Taxes and Customs (CBIC) on Tuesday issued a circular on the applicability of GST on reimbursement of electricity charges received by real estate companies, malls, and airport operators from their lessees or tenants.

“It is clarified that whenever electricity is being supplied bundled with renting of immovable property and/or maintenance of premises, as the case may be, it forms a part of composite supply and shall be taxed accordingly,” it said.

The principal supply is renting of immovable property and maintenance of premise while the supply of electricity is ancillary,’ it said. “Even if electricity is billed separately, the supplies will constitute a composite supply, and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property and/or maintenance of premise, as the case may be, would be applicable,” it added.

It also clarified that residents living in a housing society will be exempted from GST. In cases, where the electricity is supplied by the real estate owners, resident welfare associations (RWAs), or real estate developers as a pure agent, it will not form part of the value of their supply. “Further, where they charge for electricity on an actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply,” it added.

Experts have mixed views on this clarification. “The recent clarification issued by the CBIC has raised significant concerns within the real estate sector. This clarification imposes GST on electricity charges, whether supplied bundled with immovable property or separately. While it does allow for exceptions when real estate owners act as pure agents or recover electricity charges on actual basis,” the Expert said.

“In cases where real estate companies convert high tension lines to low tension lines and charge higher rates due to transmission loss, the implications of this clarification remain a point of concern,” he said. “Going forward, the said clarification may lead to an increase in the rental cost, as landlords may factor the GST cost on electricity when determining lease rental amounts,” he added.

Another Expert, however, found it beneficial for business persons. “The clarification on electricity charges recovered as part of a composite supply, besides ensuring commonality of practices across the real estate sector, will also be beneficial to the recipients of such composite supplies who were being questioned on the eligibility of input tax credits (ITC),” he said.

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