The West Bengal Authority of Advance Ruling (AAR) has held that no Goods and Service Tax (GST) exemption is available on leasing out of constructed property on leased land.

The bench of Dr. Tanisha Dutta and Jaydip Kumar Chakrabarti has observed that leasing out of constructed property on leased land does not fall under the category of “Accommodation Service” and hence the question of exemption under entry in Sl. No. 12 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 as asked for by the applicant does not arise.

As per entry in sl. no. 12 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, Services by way of renting of residential dwelling was covered under both “Accommodation Services” (SAC: 9963) as well as Real Estate Services (SAC: 9972) till 14.07.2024. With effect from 15.07.2024 such is treated as a supply only under Real Estate Services, where it states that – Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person is exempted. However, for the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, – (i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and (ii) such renting is on his own account and not that of the proprietorship concern.

Moreover, this entry does not apply to (i) accommodation services for students in student residences; and (ii) accommodation services provided by Hostels, Camps, Paying Guest accommodations and the like. To provide for exemption on accommodation services for students in student residences; and accommodation services provided by Hostels, Camps, Paying Guest accommodations and the like, a new entry vide sl. no. 12A has been inserted in the of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, with effect from 15.07.2024 whereby “Supply of accommodation services having value of supply less than or equal to twenty thousand rupees per person per month provided that the accommodation service is supplied for a minimum continuous period of 90 days” under “Accommodation Services” (SAC: 9963) is exempted.

The applicant submits that it intends to get a land from West Bengal Housing Infrastructure Development Corporation Ltd., a Government of West Bengal Company on 99 years lease for setting up of Hotel-cum Shopping and Multiplex under the principal use-Assembly – Mercantile Retail, which includes the permission to construct certain area as

residential flats.

The applicant has sought the advance ruling on four issues.

Firstly, whether the applicant is liable for any kind of GST on its construction work for the prospective clients:

a) When lump sum payment is charged;

b) When periodic payment is charged for agreed term;

Secondly, if GST is liable, what shall be the HSN and GST rate and whether GST shall be on entire amount received or on amount after deduction as attributable to land portion i.e 1/3 of consideration by virtue of para 2 in rate Notification No. 11/2017 dated 28-6-2017, as amended?

Thirdly, if it is an accommodation service, whether the applicant is eligible for exemption in clause 12 of Not. No.12/2017 dated 28-6-2017 as amended? 

Lastly, whether GST is payable for monthly/annual maintenance charges? If yes, HSN and GST rate?

The AAR has held that GST on construction work for prospective clients, regardless of whether one charges a lump sum or periodic payments is liable to be paid.

The AAR ruled that the applicable SAC (and not HSN Code) on this supply is 9954 (Construction Services) and the applicable tax rate on the supply under consideration shall be 18%.The applicant is eligible for a deduction as attributable to land portion i.e. 1/3 of consideration on the total value of supply for the purpose of payment of applicable tax.

The AAR stated that  leasing out of constructed property on leased land does not fall under the category of “Accommodation Service” thus benefit of exemption notification is not available.

The AAR held that 18% GST is payable on monthly/annual maintenance charges.

Ruling Details

Applicant’s Name: OM PRAKASH MAHAWAR

Ruling Date:  08.05.2025

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