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GST
Applicability on Reimbursement of Electricity Charges in Real Estate
Introduction:
The Goods
and Services Tax (GST) regime in India often raises questions regarding its
applicability on various transactions, especially in complex scenarios like the
real estate sector. One such area of ambiguity is the reimbursement of
electricity charges by real estate companies, malls, airport operators, etc.,
from their lessees or occupants. This article delves into the intricacies of
GST application in such cases and clarifies the scenarios where GST is
applicable.
A. Composite Supply: Electricity and Property
Renting
The primary consideration
under GST is whether the supply of electricity, when bundled with renting of
immovable property and/or maintenance of premises, constitutes a composite
supply.
Composite Supply Defined:
·
Principal
Supply: The main supply which, in this context, is the renting of immovable
property and/or maintenance of premises.
·
Ancillary
Supply: The secondary supply, here being the supply of electricity.
When these supplies are
combined, even if billed separately, they are treated as a composite supply.
The GST rate applicable to the principal supply (renting of
property/maintenance) will also apply to the ancillary supply (electricity).
Practical Implications
Example 1: Mall Leasing: A mall leases
out its spaces to various retailers and provides electricity as part of the
lease agreement. Here, the principal supply is the leasing of space, and the
electricity supply is ancillary. GST on the total amount, including the
electricity charges, will be at the rate applicable to property leasing.
Example 2: Airport Operators: Airport
operators leasing space to vendors also supply electricity as part of the
agreement. In this scenario, the electricity charges, even if billed
separately, will attract GST at the rate applicable to the leasing of the
space.
B. The Pure Agent Concept: A different consideration
arises when real estate owners, Resident Welfare Associations (RWAs), or real
estate developers supply electricity purely on behalf of their lessees or
occupants. This scenario is termed as acting as a 'pure agent'.
Pure Agent Criteria:
·
Charges for
electricity must be on an actual basis, i.e., the same amount charged by State
Electricity Boards or DISCOMs without any markup.
·
The
supplier must act purely as an intermediary without deriving any profit from
the supply of electricity.
GST
Implications for Pure Agents
Exclusion from Value of Supply: When acting as a pure agent,
the electricity charges do not form part of the value of supply of the primary
service (renting/maintenance). Hence, no GST is applicable on the electricity
charges reimbursed by the lessees or occupants.
Example 3: Residential Complex: An RWA
supplies electricity to residents and charges them exactly what the electricity
board charges the RWA. Here, the RWA acts as a pure agent, and the electricity
charges are not subject to GST.
Conclusion: Understanding the
applicability of GST on the reimbursement of electricity charges in the real
estate sector requires a careful examination of the nature of the supply. When
bundled with property renting or maintenance, electricity charges are part of a
composite supply and attract GST at the rate of the principal supply. However,
when the supplier acts as a pure agent and charges electricity on an actual
basis, these charges are exempt from GST. Real estate companies, mall
operators, airport operators, and RWAs must evaluate their billing practices to
ensure compliance with GST regulations.
Key
Takeaways
· Composite Supply: Electricity
charges bundled with property renting/maintenance are part of a composite
supply and taxed at the rate of the principal supply.
· Pure Agent: When electricity
is supplied on an actual basis without markup, it is exempt from GST as it
doesn't form part of the value of supply.
By adhering
to these guidelines, businesses can navigate the complexities of GST and ensure
proper compliance while managing their billing practices effectively.
Disclaimer: All the
Information is based on the notification, circular and order issued by the
Govt. authority and judgement delivered by the court or the
authority information is strictly for educational purposes and on the
basis of our best understanding of laws & not binding on anyone.
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