Electricity charges, if bundled with rent or maintenance charges by real estate companies, shopping malls or airports, will be considered a composite supply and will be subject to goods and services tax ( GST) at the rate of 18%. However, in the case where electricity is supplied by property owners, residents’ welfare associations or property developers, as a « pure agent » when the fee is actually charged by the national electricity commission or discoms (distribution companies), it will not attract GST as a composite supply.
The Central Board of Indirect Taxes and Customs (CBIC) has now issued a clarification on whether GST is applicable on reimbursement of electricity charges received by real estate companies, shopping malls, airport operators in the share of their tenants or occupants. “It is clarified that whenever electricity is supplied in conjunction with rental of immovable property and/or maintenance of premises, as the case may be, it forms part of the composite supply and shall be taxed accordingly. The principal supply is rental of immovable property and maintenance of premises, as the case may be, and the supply of electricity is an incidental supply,” the CBIC said.
Even if electricity is billed separately, the supplies will constitute a composite supply and therefore the rate of the main supply which is the rate of GST on rental of immovable property and maintenance of premises, as the case may be, would be applicable, he further said.
According to experts, the tax should ultimately be borne by the tenant and could impact the rents and maintenance costs invoiced by the owner and deposited with the tax authorities. However, they noted that this clarification still leaves some uncertainty and has also raised significant concerns within the real estate sector.
“This clarification imposes GST on electricity charges, whether supplied in conjunction with real estate or separately, although it allows for exceptions where real estate owners act as pure agents or recover the electricity charges. electricity on a real basis,” said Saurabh Agarwal, EY partner.
In cases where real estate companies convert high-voltage lines to low-voltage lines and charge higher rates due to transmission loss, the implications of this clarification remain a matter of concern, he noted, however. , adding that it could lead to an increase in rental costs. , as landlords can take into account the cost of GST on electricity when determining rent amounts.
« This clarification is also in line with West Bengal’s advance ruling on the Airports Authority of India, which considers the supply of electricity as part of a composite supply, » Agarwal said, while cautioning that it provides the tax department with a basis for resolving previous issues. and potentially issue new notices to homeowners who have not charged GST on electricity refunds.
Prateek Bansal, tax partner at White and Brief–Advocates & Solicitors, highlighted that generally, electricity cost reimbursement is associated with a certain primary provision of services, whether rental services or maintenance, as applicable. “Although the circular has provided for an exception in the case of “pure agent” where reimbursement is received at the actual price, it will be difficult to establish the non-existence of a principal supply to the extent that a person cannot be considered as acting only as a “pure agent”. « for the purpose of collecting and paying electricity charges, » he said. However, to take advantage of the exclusion, companies can obtain authorization from the actual electricity consumer to act in as a “pure agent” and to make payments to third parties on its behalf.