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GST on electricity bills: Commercial property tenants to pay 18% GST

The Central Board of Indirect Taxes and Customs (CBIC) has recently issued a clarification regarding the applicability of Goods and Services Tax (GST) on electricity charges for tenants, particularly those renting commercial properties. According to the clarification, tenants will be required to pay 18% GST on electricity charges if the supply is combined with the rental of immovable property and facility maintenance.

Understanding the Composite Supply

The CBIC's clarification emphasizes that whenever electricity is provided along with the maintenance of premises or the rental of immovable property, it constitutes a composite supply and will be taxable as such. In this context, the primary supply is considered to be the leasing of real estate and grounds maintenance, with the provision of electricity being incidental.

The rate of the principal supply, which includes GST on renting of immovable property and/or maintenance of premises, will apply even if electricity is billed separately. This means that tenants will be liable to pay 18% GST on electricity charges if it is part of a composite supply.

Exclusions and Exceptions

While the CBIC's clarification imposes GST on electricity charges for tenants in most cases, there are some exclusions and exceptions to be aware of. Power that is billed on an actual basis by real estate owners or malls, acting as distribution companies' agents, will not be subject to any GST.

Furthermore, homeowners in housing societies are not required to pay GST on electricity charges. This exemption applies when the electricity is provided by resident welfare associations (RWAs), real estate developers acting as pure agents, or real estate owners.

In these cases, where charges are based on the actual consumption of electricity, the entities providing the electricity will be deemed to be acting as pure agents and will not include GST in the value of their supply.

Implications for Tenants and Commercial Properties

The CBIC's clarification has generated mixed opinions among experts. Some experts express concern about the impact this may have on the real estate industry and commercial tenants. With the inclusion of GST on electricity charges, landlords might consider factoring in the GST cost when calculating lease rental amounts. This, in turn, could lead to an increase in the overall rental cost for commercial tenants in the long run.

On the other hand, some experts believe that the clarification provides benefits for businesspeople. It ensures uniformity of procedures throughout the real estate industry and addresses eligibility concerns for input tax credits (ITC) related to composite supplies that include electricity charges.

Conclusion

In summary, the CBIC's clarification on GST on electricity bills for tenants renting commercial properties highlights the concept of composite supply. Tenants will be required to pay 18% GST on electricity charges if it is provided along with the rental of immovable property and facility maintenance. However, power billed on an actual basis by real estate owners or malls acting as discoms' agents will not be subject to any GST.


 

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The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

Yes, the GST rate on electricity bills, including for commercial properties, is standardized at 18% as per current regulations.

No, residential tenants are exempt from paying GST on electricity bills. The GST is applicable primarily to commercial property tenants.

Commercial property tenants will experience an increase in their electricity expenses due to the addition of the 18% GST component to their bills.

As of now, there are no specific exemptions or reductions applicable to GST on electricity bills for commercial property tenants.

Commercial property tenants are required to pay GST on electricity bills as it falls under the ambit of taxable goods and services as per GST regulations.

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