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

GST on electricity bills

GST on electricity bills:  CBIC has issued clarification to explain that tenants, especially those renting commercial properties, will be required to pay 18% Goods and Services Tax (GST) on electricity charges if the supply is combined with the rental of immovable property and facility maintenance. However, power that is billed on an actual basis by real estate owners or malls, which act as discoms’ agents, will not be subject to any GST.

A circular regarding the applicability of GST on the reimbursement of electricity prices received by airport operators, mall operators, and real estate businesses from their lessees or tenants was released by the Central Board of Indirect Taxes and Customs (CBIC).

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It stated, “It is made clear that whenever electricity is provided in conjunction with the maintenance of premises and/or the rental of immovable property, as the case may be, it constitutes a composite supply and will be taxable as such.”

According to the statement, “the primary supply is the leasing of real estate and grounds maintenance; the provision of electricity is incidental.” It further said that “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 apply even if electricity is billed separately.” Instead, the supplies will be a composite supply.

Read more: GST on Renting of Immovable Property – Residential and Commercial

It also made it clear that homeowners in housing societies would not be subject to GST. It won’t be included in the value of their supply if the electricity is provided by resident welfare associations (RWAs), real estate developers acting as pure agents, or real estate owners. It continued, “Furthermore, they will be deemed to be acting as pure agent for this supply where they charge for electricity on an actual basis, that is, they charge their lessees or occupants the same amount for electricity as charged by the State Electricity Boards or DISCOMs from them.”

Expert opinions on this clarification are divided. “The real estate industry is quite concerned about the clarification that the CBIC recently released. With this clarification, power charges—whether provided independently or in conjunction with real estate—are subject to GST. However, there are some exclusions permitted, according to the expert, in situations where property owners operate as pure agents or recover electricity costs on an actual basis.”

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The implications of this clarification remain a point of concern in cases where real estate companies convert high tension lines to low tension lines and charge higher rates due to transmission loss. In the future, landlords might consider the GST cost on power when calculating lease rental amounts, which could result in an increase in the rental cost. This will impact the commercial tenants in a long run.

However, a different expert believed that it was advantageous for businesspeople. In addition to guaranteeing uniformity of procedures throughout the real estate industry, stated that “the clarification on electricity charges recovered as part of a composite supply will also be beneficial to the recipients of such composite supplies who were being questioned on the eligibility of input tax credits (ITC)”.

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